Since decreases in demand and supply, considered separately, each cause equilibrium quantity to fall, the impact of both decreasing simultaneously means that a new equilibrium quantity of coffee must be less than the old equilibrium quantity. Prices of related goods can affect demand also. If you add these two parts together, you get the price the firm wishes to charge. When more coffee is demanded than supplied, there is a shortage. Conversely, especially good weather would shift the supply curve to the right. Decide whether the economic event being analyzed affects demand or supply. Lakdawalla, Darius and Tomas Philipson, The Growth of Obesity and Technological Change: A Theoretical and Empirical Examination, National Bureau of Economic Research Working Paper no. How can you analyze a market where both demand and supply shift? A change in buyer expectations, perhaps due to predictions of bad weather lowering expected yields on coffee plants and increasing future coffee prices, could also increase current demand. A shift in demand means that at any price (and at every price), the quantity demanded will be different than it was before. As the price falls to the new equilibrium level, the quantity of coffee demanded increases to 30 million pounds of coffee per month. At a price above the equilibrium, there is a natural tendency for the price to fall. Pick a quantity (like Q0). Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the five-way combination of bacon, lettuce, tomato, mayonnaise, and bread. Do not worry about the precise positions of the demand and supply curves; you cannot be expected to know what they are. How can we analyze the effect on demand or supply if multiple factors are changing at the same timesay price rises and income falls? In this market for credit card borrowing, the demand curve (D) for borrowing financial capital intersects the supply curve (S) for lending financial capital at equilibrium . Moreover, a change in equilibrium in one market will affect equilibrium in related markets. When a demand curve shifts, it will then intersect with a given supply curve at a different equilibrium price and quantity. In Figure 3.13 The Circular Flow of Economic Activity, markets for three goods and services that households wantblue jeans, haircuts, and apartmentscreate demands by firms for textile workers, barbers, and apartment buildings.