Demand and supply both shift out, Q up, P indeterminate

When both demand and supply shift, things are a bit more complicated. It turns out that, when both curves shift, we can predict the direction of change in either price or quantity, but not both. Suppose, for example, that MP3 players become more popular, shifting out the demand curve, and that more firms start producing these players, shifting out the supply curve.

On the graph to the right, further suppose that the initial equilibrium quantity of MP3 players sold is and the price is . The growing popularity of MP3 players causes the demand curve to shift from D1 to D2. At the same time, more firms enter the MP3 player industry causing the supply curve to shift out from S1 to S2. As a result of these shifts, it is clear that the equilibrium quantity sold will increase to . The change in price is not predictable. On the graph to the right, we show one possible outcome where the new equilibrium price, , is unchanged from the original equilibrium price, .

As we will see on the next page, the equilibrium price could just as easily have risen or fallen when both demand and supply shift out. Again, the change in price is unpredictable.

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