A change in demand or a change in supply indicate a shift factor caused either the demand or supply curves to shift. The trick is to figure out what side of the market will move and in what direction. Increasing supply and demand result in horizontal shifts to the right for both curves. Decreases in supply result in horizontal shifts to the left for both curves. Don’t make a common mistake of shifting supply or demand up or down for shift factors.
Almost anything can cause either supply or demand to change. However, more common shift factors for demand include number of buyers, changes in income, changes in prices of other goods and services, tastes, preferences, future expectations of price changes, and changes in taxes. These are just the more common factors, not an exhaustive list of all possibilities.
Shift factors for supply include number of sellers, changes in input / resource costs, changes in technology, discovery of new resources, future business expectations, taxes, subsidies, changes in industry regulations and laws, weather / natural disasters, and supply chain disruptions. Here again, this is just a short list of more common shift factors.
What surprised me is how Coronavirus pandemic simultaneously disrupted supply and demand for many markets. Virus severely disrupted supply chains for resources and finished goods and shut down manufacturing across many industries. In addition, many businesses had to close. At the same time, people couldn’t go out and purchase goods and services. Many lost jobs and income, resulting in a collapse in consumer demand.
If only one side of the market changes, economists can provide a good prediction of how market prices and quantities will change. If demand increases while supply stays the same, market quantity and price will increase. Opposite is true for a decrease in demand. Market price and quantity will fall. If supply increase while demand stays the same, market quantity will increase, and market price will decrease. If supply decreases, market quantity will decrease, and market price will increase.
Is it helpful to use supply and demand to frame economic problems such as trouble in the oil market?