Effect of Simultaneous change in Demand and Supply on Equilibrium Price

If demand increases:

• The demand curve shifts right.
• More people want to buy at the current price, so there’s a shortage.
• Sellers increase the price.
• Quantity supplied goes up, quantity demanded goes down, until equilibrium is reached at a higher price and quantity.

If demand decreases:

• Demand curve shifts left.
• Fewer people want to buy at the current price, so there’s surplus.
• Price falls as sellers compete.
• Quantity supplied lowers, buyers respond to lower prices, new equilibrium is at lower price and quantity.

If supply increases:

• Supply curve shifts right.
• More sellers, surplus goods at the old price.
• Sellers reduce prices to sell stock.
• Lower price increases quantity demanded, new equilibrium has lower price, higher quantity.

If supply decreases:

• Supply curve shifts left.
• Fewer goods available, shortage at the old price.
• Prices go up, buyers buy less.
• New equilibrium: higher price, lower quantity.

1. If both demand and supply rise, quantity always increases, but price may go up, down, or stay the same depending on which moves more.
2. If both demand and supply fall, quantity always decreases, price changes according to the difference in shifts.
3. If demand and supply move in opposite directions, price changes strongly in the direction of demand; the effect on quantity depends.

During the Diwali festival:

• Demand for sweets increases as more people want to buy them.
• Sweet shop owners also prepare extra sweets (supply increases).
• If more buyers come than sellers expect (demand up more than supply), prices rise.
• If supply increases more, prices could fall even as shops sell more sweets.

• Price effect depends on the size and direction of shifts in both demand and supply.
• Quantity usually moves in the direction of both curves (↑ if both rise, ↓ if both fall).
• Use diagrams to show shifts.
• Always check which change (demand or supply) is bigger to predict the final outcome.