Supply and Demand: Shifts vs Movements Along the Curve
Intro microeconomics / AP Economics · 12 flashcards · 7 quiz questions · updated 2026-08-19
One distinction accounts for most of the marks in this topic: a change in the good's own price moves you along a curve; a change in anything else shifts the curve.
Get that right and equilibrium questions become mechanical — including the awkward ones where both curves move at once.
Movement vs shift
The same split applies to supply: the good's own price moves you along the supply curve (a change in quantity supplied); anything else shifts it (a change in supply).
| Cause | Effect on demand | Terminology |
|---|---|---|
| Price of the good itself changes | Movement along the curve | Change in quantity demanded |
| Income, tastes, related goods, expectations, number of buyers | Whole curve shifts | Change in demand |
What shifts demand
- •Income — demand rises for normal goods, falls for inferior goods (instant noodles are the standard example).
- •Price of substitutes — if the price of tea rises, demand for coffee rises.
- •Price of complements — if the price of printers falls, demand for ink rises.
- •Tastes and preferences, including advertising and fashion.
- •Expectations — expecting a price rise next month raises demand today.
- •Number of buyers in the market.
What shifts supply
- •Input prices — cheaper steel shifts car supply right.
- •Technology — a productivity improvement shifts supply right and is effectively permanent.
- •Taxes and subsidies on producers — a per-unit tax shifts supply left, a subsidy right.
- •Expectations of future prices — expecting higher prices later can reduce supply now.
- •Number of sellers.
- •Prices of other goods the firm could produce instead.
Predicting the new equilibrium
When both curves shift, one outcome is always determinate and the other always depends on the relative sizes of the shifts. Demand up and supply up: quantity definitely rises, price is ambiguous. Demand up and supply down: price definitely rises, quantity is ambiguous.
| Change | Equilibrium price | Equilibrium quantity |
|---|---|---|
| Demand increases | Rises | Rises |
| Demand decreases | Falls | Falls |
| Supply increases | Falls | Rises |
| Supply decreases | Rises | Falls |
Elasticity, briefly
- •Price elasticity of demand = % change in quantity demanded ÷ % change in price, in absolute terms.
- •Elastic (> 1): quantity responds strongly; a price cut raises total revenue.
- •Inelastic (< 1): quantity barely responds; a price rise raises total revenue. Insulin and petrol are the usual examples.
- •Demand is more elastic when substitutes exist, when the good is a large share of income, and over longer time horizons.
Price controls
- •A price ceiling below equilibrium (rent control) creates a shortage: quantity demanded exceeds quantity supplied.
- •A price floor above equilibrium (a minimum wage above the market rate) creates a surplus — in that example, unemployment.
- •A control set on the non-binding side of equilibrium changes nothing.
Common mistakes
- ✗Saying 'demand increased' when the price of the good itself fell — that is a change in quantity demanded.
- ✗Shifting the demand curve for a good when its own price changes.
- ✗Mixing up substitutes and complements, especially with an unfamiliar pair of goods.
- ✗Claiming a definite answer for both price and quantity when both curves shift.
- ✗Assuming every price ceiling causes a shortage — one set above equilibrium is non-binding.
Flashcards
Tap a card to reveal the answer.
What causes a movement along the demand curve?⌄
A change in the price of the good itself.
Name the demand shifters.⌄
Income, prices of related goods, tastes, expectations, number of buyers.
Normal vs inferior good⌄
Demand for a normal good rises with income; demand for an inferior good falls.
Substitutes: coffee price rises, what happens to tea?⌄
Demand for tea rises — its curve shifts right.
Complements: printer price falls, what happens to ink?⌄
Demand for ink rises.
Effect of a per-unit tax on producers⌄
Supply shifts left; equilibrium price rises and quantity falls.
Supply increases — what happens to price and quantity?⌄
Price falls, quantity rises.
Demand up and supply down — what is certain?⌄
Price definitely rises; the change in quantity is ambiguous.
Formula for price elasticity of demand⌄
|% change in quantity demanded ÷ % change in price|.
Elastic demand and a price cut⌄
Total revenue rises, because quantity rises proportionally more than price falls.
What does a binding price ceiling create?⌄
A shortage — quantity demanded exceeds quantity supplied.
What does a binding price floor create?⌄
A surplus.
Practice quiz
Answer first, then open the explanation.
1. The price of coffee falls. What happens in the coffee market?
- A. Demand increases
- B. Quantity demanded increases — a movement along the curve
- C. The demand curve shifts right
- D. Supply increases
Show answer
B. Quantity demanded increases — a movement along the curve
A change in the good's own price moves you along the demand curve.2. Incomes rise and cereal is an inferior good. Its demand curve:
- A. Shifts right
- B. Shifts left
- C. Does not move
- D. Becomes vertical
Show answer
B. Shifts left
Demand for inferior goods falls as income rises.3. A new technology lowers production costs. The result is:
- A. Supply shifts left, price rises
- B. Supply shifts right, price falls and quantity rises
- C. Demand shifts right
- D. A movement along the supply curve
Show answer
B. Supply shifts right, price falls and quantity rises
Cheaper production increases supply at every price, lowering equilibrium price and raising quantity.4. Demand increases and supply increases. Which is certain?
- A. Price rises
- B. Price falls
- C. Quantity rises
- D. Quantity falls
Show answer
C. Quantity rises
Both shifts push quantity up; the price effect depends on which shift is larger.5. A price ceiling set below equilibrium causes:
- A. A surplus
- B. A shortage
- C. No change
- D. A rightward shift in supply
Show answer
B. A shortage
At the capped price, quantity demanded exceeds quantity supplied.6. Demand for a good is inelastic. Raising the price will:
- A. Increase total revenue
- B. Decrease total revenue
- C. Leave revenue unchanged
- D. Shift the demand curve
Show answer
A. Increase total revenue
Quantity falls proportionally less than the price rises, so revenue increases.7. Which of these shifts the supply curve?
- A. A change in the good's own price
- B. A change in consumer income
- C. A per-unit subsidy to producers
- D. A change in buyer expectations
Show answer
C. A per-unit subsidy to producers
A subsidy lowers effective production cost, shifting supply right; income and buyer expectations shift demand.
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