A good explanation walks from the cause to the new equilibrium in steps, each one following from the last. A result without the steps earns few marks.
This lesson is part of the demand and supply cluster. You need movement versus shift and equilibrium first.
What are the six steps?
- Name the cause and the curve it affects.
- State the direction of the shift.
- Describe the shortage or surplus at the old price.
- Say how the price moves because of that gap.
- Describe the movement along the other curve.
- State the new equilibrium price and quantity.
Worked example: demand rises for fried fish
A fictional market has this schedule. The last column is demand after a health campaign raises demand by 40 fish at every price.
| Price | Demand (old) | Supply | Demand (new) |
|---|---|---|---|
| RM11 | 180 | 140 | 220 |
| RM12 | 160 | 160 | 200 |
| RM13 | 140 | 180 | 180 |
| RM14 | 120 | 200 | 160 |
Old equilibrium: RM12 and 160 fish, where old demand equals supply. New equilibrium: RM13 and 180 fish, where new demand equals supply at 180.
The explanation. A health campaign raises buyers’ preference for fried fish, so demand shifts right. At the old price of RM12, quantity demanded is now 200 but quantity supplied is only 160, so there is a shortage of 40 fish.
Buyers compete for limited fish, which pushes the price up. As the price rises, sellers move along the supply curve to a larger quantity supplied, while buyers move up the new demand curve to a smaller quantity demanded. The two meet at RM13 and 180 fish.
So the price rises from RM12 to RM13 and the quantity traded rises from 160 to 180.
The mistake: stopping at the result
A weak answer reads: “Demand increases so the price and quantity increase.” It gets the direction right but shows none of the reasoning.
| Weak answer | Full answer | |
|---|---|---|
| Cause | “Demand increases” | Campaign raises preference, demand shifts right |
| Gap | (missing) | Shortage of 40 fish at RM12 |
| Mechanism | (missing) | Price rises, supply moves along its curve |
| Result | Price and quantity up | RM12 to RM13, 160 to 180 fish |
Another slip is to say that supply increased because more fish are sold. The quantity sold rose because of a movement along the unchanged supply curve, not a shift of supply.
Check yourself
Use the original supply and demand columns above. A fictional storm cuts supply by 40 fish at every price, so new supply is 100 at RM11, 120 at RM12, 140 at RM13 and 160 at RM14. Find the new equilibrium and explain the change from the old one.
Answer
Old demand is 180, 160, 140, 120 at RM11 to RM14. New supply is 100, 120, 140, 160. They match at RM13, both at 140.
The storm raises costs and cuts supply, so the supply curve shifts left. At the old price of RM12, demand is 160 but supply is 120, a shortage of 40. The price rises, buyers move up the demand curve to a smaller quantity demanded, and sellers move along the new supply curve to a larger quantity supplied.
The new equilibrium is RM13 and 140 fish: price rises from RM12 to RM13, quantity falls from 160 to 140.
What to study next
Measure how strongly buyers respond with calculating and interpreting elasticity within syllabus scope. When both curves move, read price mechanism with more than one change.
To have a teacher read your explanations, see online one-to-one Economics tuition.