Simultaneous Shifts in Demand and Supply Video Lecture - SSC CGL Tier 2

in this video we're gonna talk about
what happens when there's a simultaneous
change in both demand and supply so
there's four different things that can
happen with the simultaneous change we
can have demand and supply both increase
together or they could both decrease
together or we could have where there's
an opposite effect where demand is
increasing but supply is decreasing or
conversely demand as decreasing but
supply is increasing so those are the
four different scenarios and so there's
a different effect on the equilibrium
quantity in the equilibrium price in
each situation so I've just summarized
two here for you so basically if you
have an increase in demand and an
increase in supply so people are wanting
to buy more of the good and suppliers
are wanting to supply more of it there's
there's these changes happening then the
equilibrium quantity is definitely going
to increase it's definitely going to go
up but the effect on the equilibrium
price is going to be indeterminate that
means that we don't know we don't know
what's going to happen and that is
because we need to know which effect is
stronger because murder we have two
different things going on here we've got
an increase in demand and an increase in
supply so normally if we just had an
increase in demand with no increase in
supply if there was just an increase in
demand the demand curve would shift to
the right and so then we would have an
increase in the price however think
about the opposite if we had an increase
in supply but no increase in demand just
an increase in supply by itself the
supply curve would shift to the right
and we would have a decrease in the
price so the increase in demand by
itself causes an increase in price but
the increase in supply by itself would
cause a decrease in price so the effect
on price is indeterminate we don't know
what would happen right and I've laid
out the different situations and in each
case we either know definitively what
happens to either the quantity and then
we then the effect on prices
indeterminate or we know what happens to
the price in a couple of situations and
then the effect on the quantity is
indeterminate now this is all pretty
theoretical I want to draw an example
for you and I'll use this this first
example where we have an increase in
demand and supply I think once I sketch
so now for you with the graph it'll be a
little easier for you to understand so
let's take the market for wind energy so
we're talking about wind energy which
could be produced with windmills and
let's say that the two things happen so
first we have some tetanus some
increases in technology that make it
easier and cheaper to produce wind
energy so because it's cheaper to
produce that's going to cause an
increase in supply so we've got an
increase in supply but then also let's
say there's a second thing let's say
there's a second thing and that consumer
preferences are changing they're
changing so that now people are
preferring more renewable energy so they
prefer wind energy to energy produced by
coal or something like that so we say
now there's going to be an increase in
demand so we're going to have both of
these right so there's there's going to
be a shift of the demand curve to the
right and there's gonna be shift of the
supply curve so let me show you let's
just let's just graph this out and I'm
just gonna show you a really generic
graph okay so we've got our price we've
got our quantity and so here's our
downward sloping demand curve and then
we've got and then we change code we've
got our upward sloping supply curve I'll
call this s1 and then our supply curve
is going to shift to the right it's
going to shift to the right call that s2
by the way I so our initial equilibrium
would have been right here where s1 and
d1 let me put a little one so d1 where
they were that's our initial equilibrium
now our demand curve is also going to
shift to the right
demand curve is going to shift to the
right so say here is our d2 so now now
our new equilibrium our new equilibrium
is going to be we're asked to and d2
intersect just as our original
equilibrium was where s1 and d1
intersect it so now let's draw the new
equilibrium it's gonna be he's gonna be
right here
so if we were to say okay well what's
what's what happened to our equilibrium
quantity well initially our equilibrium
quantity will call this
q one that's just the Q the quantity
right here but now we are here Q two so
our equilibrium quantity has increased
considerably
see that so that's when we have an
increase in supply and an increase in
demand we know that the equilibrium
quantity is gonna go up that's that's
guaranteed so we know that that that's
gonna happen now what's the effect on
price was the effect on price well take
a look here the price is basically
unchanged in this example now it doesn't
have to it's not always until it's gonna
be indeterminate and the reason is that
I could draw this differently I could
draw this differently so that we would
have a situation where that basically if
let's say so the increase in demand is
going to increase price so this
increases price and the increase in
supply is going to decrease price so if
the increase in demand if the increase
in demand is is kind of weak if the
increase in demand is weak let's just
say this was weak and the increase in
supply was really strong then the
increase in supply that the effect it
has on depressing the price would
outweigh the the increase in price from
the increase in demand now again that's
kind of theoretical so let me give you
an example of this right here so now
this is just kind of a generic scenario
where I have basically the increase in
demand and supply we're about the about
the same amount but let's say this
scenario where we say okay the increase
in the supply is really strong but the
increase in demand is it's kind of weak
and by weak I just mean it's not not as
not as a large an effect so so let me
let's do this here we go
I'm not using numbers and everything I
just want to you know save you time and
go through this quickly so let's say
that here's our demand curve we'll call
it D 1 and then we have a shift or well
let me let me finish drawing out all the
when we draw out the supply curve and
stuff - not too so don't want to confuse
you
so here's s 1 and then that's our
initial leak equilibrium would be right
here
so we'd have Q 1 and we'd have P 1 so
again we're gonna have an increase in
demand and an increase in supply
simultaneously but I'm gonna draw it
such that the increase in demand it's
just it's kind of a small increase in
demand so let's say let's make it even
smaller than that so let's say the
increase in demand it shifts to the
right you see that the D 2 is shifted to
the right of D 1 so it's an increase in
demand alright but it's not as wide as
as we had over here right so now let me
show you
let's do again a big increase in supply
a big increase in supply so now we've
got s 2 so our equilibrium there's going
to be where s 2 and D 2 intersect that's
right here see that that's our our new
equilibrium so we plot these points here
so we're at Q 2 is our new equilibrium
quantity and P 2 is here so now you see
P 2 so the new this p2 is less than p1
so Q 2 is greater than Q 1 so we have an
increase we know that right remember we
said with an increase in demand and
supply at the same time there's always
going to be an increase in quantity in
the equilibrium right so we know that
that's not changing based on which
effect is strong or weak or right
whether the supply of the change or
demand change but now look at the price
before we said well we don't really know
what's gonna happen but now because this
change shift in demand was was kind of
weak it wasn't as strong as the shift in
supply the effect of the shift in supply
which by itself if we had a change
increase in supply would decrease
price the equilibrium price that effect
now that is the stronger effect so that
decrease in price is like it's winning
the battle Lu consultant so to speak and
think of that increase in supply and its
effect on price is stronger than the
increase in demand because the increase
in demand there's just this little shift
here
there's just the it's a shift but it
still low but then look at this shift of
the supply curve okay so conversely if
we had done something where we had a
really strong increase in demand and
then a really weak you know kind of
small increase in supply then the
opposite thing would have happened then
we would have actually had an increase
in price