4.7 : Simultaneous Shifts in Demand and Supply Curves II

Shifts in demand and supply curves can happen in opposite directions.

Consider a market for gasoline cars.

Suppose a technological breakthrough improving fuel efficiency increases car demand. This shifts the demand curve rightward.

At the same time, new environmental rules increase production costs, reducing car supply and shifting the supply curve leftward.

This simultaneous rightward shift in demand and leftward shift in supply leads to a higher equilibrium price, as the reduced supply cannot meet the increased demand. However, the effect on the equilibrium quantity depends on the relative magnitudes of the shifts.

Conversely, if environmental concerns drive consumers away from gasoline cars, there will be a leftward shift in the demand.

Paradoxically, suppose innovations in car manufacturing technology reduce production costs, leading to a rightward shift in the supply curve.

In such a scenario, the equilibrium price will fall due to the decrease in demand not being sufficiently countered by the increase in supply. However, the effect on the equilibrium quantity depends on the relative magnitudes of the shifts.