Changes in Supply and Demand

Changes in Supply and Demand

• Describe the differences between changes in demand and changes in the quantity demanded
• Describe the differences between changes in supply and changes in quantity supplied

It's hard to overstate the importance of understanding the difference between shifts in curves and movements along curves. Remember, when we talk about changes in demand or supply, we do not mean the same thing as changes in quantity demanded or quantity supplied.

A change in demand refers to a shift in the entire demand curve, which is caused by a variety of factors (preferences, income, prices of substitutes and complements, expectations, population, etc.).  In this case, the entire demand curve moves left or right:

A change in quantity demanded refers to a movement along the demand curve, which is caused only by a change in price.  In this case, the demand curve doesn't move; rather, we move along the existing demand curve:

Similarly, a change in supply refers to a shift in the entire supply curve, which is caused by shifters such as taxes, production costs, and technology.  Just like with demand, this means that the entire supply curve moves left or right:

A change in quantity supplied refers to a movement along the supply curve, which is caused only by a change in price.  Similar to demand, a change in quantity supplied means that we're moving along the existing supply curve:

Here's one way to remember: a movement along a demand curve, resulting in a change in quantity demanded, is always caused by a shift in the supply curve. Similarly, a movement along a supply curve, resulting in a change in quantity supplied, is always caused by a shift in the demand curve.

Source: Lumen Learning, https://courses.lumenlearning.com/wmopen-microeconomics/chapter/changes-in-supply-and-demand/
This work is licensed under a Creative Commons Attribution 4.0 License.

Watch It

Watch this video for another demonstration of the important distinction between these terms.

Try It

Question 1

Try graphing each of these situations to determine if they cause a shift in demand, quantity demanded, supply, or quantity supplied.

The cost of rubber used to produce tires falls by 20%. This will result in ________ for tires.

• an increase in the quantity demanded
• a decrease in demand
  
• an increase in demand
  

Question 2

A recent study reveals that raisins are a natural aphrodisiac. This will likely result in ________ for raisins.

• only a decrease in the quantity demanded
• only an increase in the quantity demanded
  
• an increase in demand
  

Question 3

An unexpected government tax rebate has given all the residents in your town $1,000 of extra income. This will result in ________ for goods at the local retail store.

• an increase in the quantity supplied
• anly an increase in quantity demanded
  
• an increase in supply
  

Question 4

A recent pork shortage has increased its price by 25% on the world market. As an avid fan of hot dogs you would expect ________.

• a decrease in demand
• anly a decrease in the quantity supplied
  
• a decrease in supply
  

Answer to Try It

1.

• an increase in the quantity demanded Correct.
  Lower input prices will shift the supply curve to the right, causing movement along the original demand curve to a new equilibrium.
• a decrease in demand
  This is incorrect. An increase in the demand can only occur when the demand curve shifts. Inputs prices only shift the supply curve.
• an increase in demand
  This is incorrect. An increase in demand can only occur when the demand curve shifts. Input prices only shift the supply curve.

2.

• only a decrease in the quantity demanded
  This is incorrect. A movement along a demand curve, resulting in a change in quantity demanded, is always caused by a shift in the supply curve.
• only an increase in the quantity demanded
  This is incorrect. A movement along a demand curve, resulting in a change in quantity demanded, is always caused by a shift in the supply curve.
• an increase in demand
  Correct. Changing tastes will result in a shift of the demand curve to the right, so that a greater quantity is demanded at any given price.

3.

• an increase in the quantity supplied
  Correct. The rightward shift in the demand curve caused by the extra income will result in movement along the supply curve and therefore an increase in quantity supplied.
• anly an increase in quantity demanded
  This is incorrect. The extra income will shift the demand curve, causing movement along the supply curve and a change in quantity supplied.
• an increase in supply
  This is incorrect. The extra income will shift the demand curve, causing movement along the supply curve and a change in quantity supplied.

4.

• a decrease in demand
  This is incorrect. Higher input prices will cause the supply curve to shift, not the demand curve. The result is ultimately a decrease in the quantity demanded.
• anly a decrease in the quantity supplied
  This is incorrect. A change input prices will shift the supply curve, not the demand curve. Changes in quantity supplied are caused by shift of the demand curve.
• a decrease in supply
  Correct. Higher input prices will cause the supply curve to shift leftwards, resulting in movement along the demand curve and a new equilibrium.

Try It

Glossary

demand:

quantity demanded:

quantity supplied: 

shift in demand:

shift in supply: 

supply: