Effects of Shifts in Both Supply and Demand on Equilibrium Price and Quantity:

(1) Simultaneous Shifts in Demand and Supply:

We have so far discussed the effects of changes in demand and supply on equilibrium price separately. Let us now consider a case in which changed in demand and supply take place, simultaneously. This can be better explained with the help of the following diagram.

Diagram/Figure:

In the figure (8.11) DD^/and SS^/ are the original demand and supply curves. When demand rises, the whole of demand curve DD¹, shifts upward and it intersects the old supply curve SS^/ at point F. The new equilibrium price is now equal to FK.

But if supply also increases with the rise in demand, the new equilibrium price will be established at a point where  the new supply  curve intersects the new demand curve. In our diagram, when changes in both supply and demand take place, the new equilibrium price is established at point N. NT becomes the new equilibrium price and OT the new equilibrium amount.

(2) When Supply is Greater Than Rise in Demand:

The new equilibrium price can be higher or  lower than the original price. It all depends upon the relative changes in demand and supply. If the rise in supply is greater than the rise in demand, the price will be lower than the original price. In Fig. (8.12), the price has fallen from EQ to E^/Q^/.

(3) Increase in Demand But Decrease in Supply:

If the change in demand is relatively higher than that of supply, the new equilibrium price will be higher than the original price as is shown in fig. 8.13. The equilibrium price has increased from EQ to E^/Q^/.