# When do supply and demand curves shift?

Let's assume that the price of apples has risen and that the quantity of apples sold during the last couple of weeks has decreased. From that, we can infer that the supply curve must've shifted to the left.

I still have trouble fully understanding this. I was told that when the endogenous variables, such as price and quantity, change, only a movement on the demand/supply curve happens and when exogenous variables change (demand shocks etc.) the curves themselves will shift to the left or right.

In this example a price increase takes place, so we're just moving up the demand curve, no? And when we reach the target price level, there'll be a corresponding quantity. And now because of market equilibrium the supply curve has to reach that spot, too? So it shifts to the left? Is that correct? So in a demand - supply model, there can't be singular movements on the curves, as there will always be immediate reactions that seek to recreate the equilibrium?

Edit: Thanks for all the answers!

• Why has the price of apples risen? – FooBar May 22 '15 at 15:57

## 5 Answers

Supply and demand curves are a function of price and quantity. If anything else changes other than P or Q that is relevant to the curve, the curve shifts.

For supply, these shifters generally fall into three categories:

1. Technology
2. Number of producers
3. Price of inputs

For demand:

1. Number of buyers
2. Price of complements or substitutes
3. Customer tastes and preferences
4. Consumer income

If you come up with something that didn't fit into these categories, but is not P or Q, the result is still a shift! You probably just need your imagination to squeeze it into one of these 7 formal categories. For example, if the supply curve was P=2Q+3, and there was a decrease in the cost of inputs, the demand curve could shift to P=2Q+2. Note how the price levels are lower at every level of Q. Changes in supply and demand that are not "shifts" are called "slides along the curve". They are any direct change in P or Q. This is easiest to see with a linear, mathematical example.

Let us say the government wants to set the price of a product. If P=2Q+3 is the supply, then consider that if you set the price (by law) to be 7, then Q is now 2. The curve remains steady, but we slide along it to get to the new P=7, Q=2 position. From wherever P and Q started (P=12 in the example), we now end at point P=7,Q=2, and the curve remains unmoved along the entire line P=2Q+3. • If anything else, other than P or Q changes, the curves shift. Ok, but what IF P or Q change? According to the prior statement, there should be no shift of the curves, because it's P and Q that changes now. – LesPaul May 23 '15 at 0:23
• There isn't a shift in those cases, you slide along the curve. – RegressForward May 23 '15 at 1:25
• What would be a scenario in which you slide along the curve? I mean, the price increase of apples is an increase of just P, so why are we shifting the supply curve in this case? – LesPaul May 23 '15 at 7:56
• Updated answer to reflect this question in more detail. – RegressForward May 23 '15 at 23:12
• Has the price of apples risen because there was an increase in demand? Then the demand curve will shift to the right and you will have a new equilibrium where the new demand curve and the same supply curve intersect. At this higher price, suppliers will be willing to supply a larger amount of apples.

• Has the price of apples risen because there was a decrease in supply? In that case, supply shifts left, causing the rise in prices where this new supply curve intersects the old demand curve.

In other words, the price cannot simply increase by itself. It must be that something in the market has previously shifted to lead to this outcome.

• Thanks for your reply, Nox! I do have a question left: what scenario would warrant just a movement on a suplly/demand curve? Or is this an impossibility? – LesPaul May 22 '15 at 16:35
• Let's say that we are talking about California apples. California is currently is its fourth year of a drought and the number of acres devoted to apples will decrease. This will cause the supply of apples to decrease. However, the demand for apples remains constant; nothing has changed consumer's taste for apples. New eq: \$up, Q down. Now, instead let's think of Washington; plenty of water and supply is stable. However, a new fad is to make apple pies, everyone wants to get their hands on apples, demand shifts right, while supply stays constant. New eq: \$ up, Q up. – Nox May 22 '15 at 16:46
• I understand. So there are 4 combinations (Dollar up, Q up) (Dollar up, Q down)(Dollar down,Qup)(Dollar down,Q down). My question was regarding movements in general. So far, these scenarios are only shifting curves. Is it correct that just a movement on, let's say the demand curve, is impossible in this supply demand model (without it leading to some kind of shifting of the other curve)? If we just look at the demand curve, without the supply curve, we can move from a point A to a point B with that higher apple price, and from that single curve we could tell that the quantity has decreased? – LesPaul May 22 '15 at 16:55
• I'm not sure what you mean by "just a movement". Do you mean, is it possible that a movement in a curve will not have an effect on market conditions? It is not possible. You could look at sluggish conditions, but eventually the market will move toward equilibrium. It may help to draw the curves and see what must happen when something shifts. – Nox May 22 '15 at 17:15

Movements along both curves

can only happen when we're off equilibrium. Whenever we are at an equilibrium, nothing moves, until one of the curves shifts. Now, say one of the curves has shifted. Next, we will move along the curves until we're at an equilibrium again.

Hence, any movements along curves can only happen if there was a prior shift in the curves. Typically, we think about these movements happening "quite quickly" in many markets, such that most of the time, these are "almost in equilibrium", just because price responses to changes in shifts of the curves happen so quickly.

First, note that in the real world nearly everything moves the curve. Moving along the curve is just a math artefact to explain that we deal with function:

q = f(p).

Of course, with axes confusingly exchanged their default mathematical seats. So, when you study a demand function in isolation (in other words, local closed model) you may only consider price, p, as exogenous variable and its change causes change in quantity, q. That is all. Function itself is just given and unchanged. In that abstract model you can never know WHY prices have changed because you have no information about anything outside the primitive system. In its simplest form we may consider:

q = A – B * p,

where A and B – just positive constants. (In a sense they are also exogenous but the model prohibits them to change: they are parameters – not variables.)
Second. If you treat your local market as a part of outer system, you may include the influence of the other factors (markets etc.) that are not included in you model explicitly. That is when A (and, perhaps, B) comes into play, and this play is crucial. Parameter A stands for everything else in the world. So the change of a relevant exogenous factor (i.e. consumer’s income, I) will cause change in value of A. That is what makes your curve shifting – up or down (but we confusingly teach our first-year students that it shifts right or left, which is just visual effect of axes confusion). To get a sense of it, think of your initial model as follows:

q = A – B * p = (C + D * x) – B * p,

where x can be anything that may practically influence your local market (if income, x = I). Now, A can be seen as a function of x, and there is nothing wrong to think of x (and D respectively) as a vector:

A = C + D * x.

You should now see that your simple initial model is just a projection of multifactor model:

q = C + D * x – B * p.

To sum up, there are 99.9% cases in the real world are shifts of demand (or supply) curves (the rest is for Economic textbook tests and quizzes).

• Glad I'm not the only one that considers the switch of axes (and the use of "shift left/right" vs. "shift up/down") confusing. Any idea why that is the way supply and demand graphs are usually presented? – David Deutsch Apr 5 '17 at 14:54
• @DavidDeutsch, I believe it is due to industrial organisation (IO) discipline influence, which is, perhaps, the main part of old-school microeconomics. When firms are price takers, there is nothing interesting in having p as an argument. But also when they are "price setters" (practically almost always), it seems that they make a decision about quantity (and costs) first, and then about price (though we do not know for sure (!!!), and this is a fundamental issue :). – garej Apr 5 '17 at 17:24
• @DavidDeutsch, As far as quantity becomes a "control variable" (we define the size of plant or amout of efforts), it is interesting to see its influence on other variables (i.e. costs and profits given the demand). Therefore, derivation and integration by quantity becomes more valuable for us, as we may move visually from marginal to total curves in our analysis and vice versa (do not forget about practical cornerstone - 'breakeven point', which is, to my mind, is most widely used and well understood outcome of the whole body of Micro-1 ::). But that is just a guess. What do you think? – garej Apr 5 '17 at 17:25
• Ah, I see - it springs from the chart being used from the perspective of an individual seller, whereas I usually look at it from the perspective of the overall market. So in the price taker example, the demand curve would be perfectly elastic from an individual firm's point of view, whereas in my "market-wide" view it would have a normal upward slope. Thanks for the insight! – David Deutsch Apr 5 '17 at 17:44

I see why you're confused but I feel like some other comments have addressed this but just incase you're still confused.

A curve shifts.

An equilibrium moves.

For an equilibrium to move, one OR both curves need to move.

A demand curve cannot move along a demand curve. If you consider any point where the supply and demand curves intersect to be an equilibrium;

Any shift of the demand curve will cause a movment along the supply curve.

Any shift of the supply curve will cause a movement along the demand curve.

You cannot represent a shift in equilibrium movement along a curve with only one curve.

You need to have the intersecting curve to show where the equilibrium points lie. Here you see that a fall in the price of a good causes in extension in demand, but you can't tell where the market equillibrium will lie since the S curve hasn't crossed it yet.

And finally here are 3 shifts (AD1>AD2, AD2>AD3, AD3>AD4) along a LRAS curve (ignore LRAS1). Here you can see that as AD shifts, the equilibrium point moves along the other (supply) curve.

• For some reason my final diagram is not displaying, will fix when I'm at a PC – Ksery May 25 '15 at 11:21