Both Curves Shift: Laptops

Both Curves Shift: Laptops, step by step

1. 1

   Start in equilibrium

   The market for laptops begins in equilibrium where supply and demand intersect. This starting price and quantity are our baseline for comparing what happens after two changes hit at once.

2. 2

   Incomes rise (demand right)

   Household incomes rise and laptops are a normal good, a determinant of demand. Buyers want more laptops at every price, so the demand curve shifts to the right. On its own this pushes both price and quantity up.

3. 3

   Cheaper to produce (supply right)

   At the same time a manufacturing breakthrough lowers the per-unit cost of building laptops, a determinant of supply. Producers offer more at every price, so the supply curve also shifts to the right. On its own this pushes quantity up but price down.

4. 4

   Quantity is determinate

   Both shifts move the market toward a larger quantity, so the equilibrium quantity unambiguously rises. The two rightward shifts reinforce each other on the quantity axis.

5. 5

   Price is indeterminate

   For price the two forces conflict: the demand increase pushes price up while the supply increase pushes price down. Without knowing which shift is larger you cannot tell whether equilibrium price rises or falls, so the price effect is indeterminate.

Where it ends up

The equilibrium quantity of laptops definitely increases, but the equilibrium price is indeterminate because demand and supply push it in opposite directions.

Now draw it yourself

Same graph, graded on whether you move the right curve and leave the rest alone.

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