Lesson preview · When several things change
When demand and supply both move
~7 min · Free to read
In 2024, the world installed about 25 times as much new solar power as it did in 2010. Governments in many countries encouraged homes and firms to put up panels, so demand rose. On its own, a rise in demand pushes the price up.
Yet from 2010 to 2024, the price of solar panels, for the same amount of power, fell by almost 90%. That is after allowing for inflation (prices in general rising over time). So something else must have changed as well.
Key Term
A double shift: two causes, two curves
A double shift happens when two separate causes hit a market at once. One changes what buyers want at each price, so it shifts demand. The other changes what sellers offer at each price, so it shifts supply. In these problems, each cause moves one curve, and only one.
Take one shift at a time:
- Name each cause and the curve it moves, left or right.
- Write down what each shift alone does to the price and the quantity.
- Where the two shifts agree, the result is certain. Where they clash, it depends on which shift is bigger.
Key Term
Four double shifts
| Demand | Supply | Price | Quantity |
|---|---|---|---|
| right | right | ? | up |
| left | left | ? | down |
| right | left | up | ? |
| left | right | down | ? |
A ? means the result depends on which shift is bigger. In every row, exactly one result is certain.
Each time both curves moved right, the quantity rose. The price fell when supply moved further, held when the two moved equally, and rose when demand moved further. So the result both shifts agree on is certain; the one they fight over depends on which shift is bigger.
Back to solar panels. Demand rose, but supply rose too. Better technology let each panel make more power for less cost. China’s government also backed its panel makers as a key industry. So firms offered more panels at every price. Both shifts raised the quantity, so that part was certain. The price could have gone either way, and its fall of almost 90% shows the supply shift was bigger.
Trap · Common Misconception
"The price fell, so demand shifted too"
A new machine cuts the cost of baking bread. Supply shifts right, the price falls, and people buy more bread. That extra buying is not a second shift. Buyers are reacting to the lower price, so they move along the demand curve. Only a separate cause, such as a report that bread is good for you, would shift demand. One cause, one curve.
Tip
Don't guess the uncertain result
If both curves move the same way, the quantity is certain. If they move opposite ways, the price is certain. For the other result, write “it depends on which shift is bigger”, unless you’re told how big each shift is.
Worked Example
In a beach town, a heatwave arrives in the same week that the price of milk, the main ingredient in ice cream, goes up. Predict the price of ice cream and the number sold.
Check yourself · no marks
A ski town has a warm winter with little snow, so fewer skiers want hotel rooms. In the same season, two hotels close for repairs. What can you be sure of in the market for hotel rooms?
Commit to one first. Guessing and being wrong beats reading the answer cold.
The hurricane hits the growers, who are the sellers, so it moves supply, and only supply. In a double shift, make this call for each cause, then combine the results.
Practice · 1 / 6
Growers start using a cheaper way to grow strawberries. In the same month, a popular health report says strawberries are good for you. What can you be sure of in the strawberry market?
Next
Like what you read?
Sign up free to save your progress, get spaced reviews tuned to you, and work through the whole course with interactive graphs and adaptive practice.