Now let one curve move. You can tell which curve and which way (What Shifts Supply, Substitutes and Complements), and you know a gap pushes the price (Shortages and Surpluses). Put the pieces together in four steps.
Key idea
(1) Start at the equilibrium. (2) Decide which curve the event shifts. (3) Decide which way. (4) Find the new crossing. Demand up: $P$ and $Q$ both rise. Demand down: both fall. Supply up: $P$ falls and $Q$ rises. Supply down: $P$ rises and $Q$ falls.
Why it works
Take an increase in demand. At the old price, buyers now want more than sellers offer: a shortage. The price rises, and as it rises, sellers move up along the supply curve, offering more. The new equilibrium has a higher price and a higher quantity. The supply curve never moved; the higher price only moved sellers along it.
Worked example: A bad harvest
A freeze destroys part of the orange crop. What happens to the price and quantity of oranges?
- The freeze affects sellers' ability to produce: supply shifts.
- Fewer oranges at every price: supply decreases (left).
- At the old price there is now a shortage, so the price rises, and buyers move up along demand, buying less.
Answer: Price rises, quantity falls.
Worked example: With numbers
$Q_d = 20 - 2P$ and $Q_s = -4 + 2P$. Incomes rise and demand increases by 6 units at every price. Find the new equilibrium.
- New demand: $Q_d = 26 - 2P$.
- $26 - 2P = -4 + 2P$, so $30 = 4P$ and $P = 7.5$.
- $Q = 26 - 2(7.5) = 11$. Both rose, from \$6 and 8 units.
Answer: $P = \$7.50$, $Q = 11$.
Common mistake
"Double shifting": the price rises, so supply increases, so the price falls… The higher price moves sellers along the supply curve; it doesn't shift it. A price is never a shifter in its own market. Check: name the one event and the one curve it shifts. Everything else that happens is a movement along the curve that did not shift.