EconomicsISC Class 12 · Market Mechanism

Equilibrium Price and Quantity: Effects of Changes in Demand and Supply with Numericals

Updated 17 October 2026 · Fact-checked

Market equilibrium is the price at which quantity demanded equals quantity supplied, so there is no excess demand or supply. If demand rises with supply unchanged, price and quantity both rise; if supply rises with demand unchanged, price falls and quantity rises. When both shift together, the quantity effect or the price effect is certain, but the other depends on the relative sizes of the shifts.

When demand shifts right and supply stays put, the new equilibrium E2 lies up the supply curve, so both price (P2) and quantity (Q2) rise.

Illustration drawn for QuestionBuddy.

Understand Equilibrium Price and the Effects of Shifts in Demand and Supply

1. Equilibrium and disequilibrium. Equilibrium exists at the price where quantity demanded = quantity supplied (the equilibrium or market-clearing price, with the equilibrium quantity). Neither buyers nor sellers wish to change their behaviour. Disequilibrium exists at any other price:

Price above equilibrium: quantity supplied > quantity demanded, so excess supply (surplus). Sellers compete, price falls.
Price below equilibrium: quantity demanded > quantity supplied, so excess demand (shortage). Buyers compete, price rises.

The forces of demand and supply therefore push the price back to equilibrium (the self-correcting market mechanism).

2. Finding equilibrium. From a schedule, read the price where Qd = Qs. From functions, put Qd = Qs and solve. For Qd = a - bP and Qs = c + dP, the equilibrium price is P = (a - c)/(b + d), and the quantity is found by substituting P into either function.

3. Shift of a curve versus movement along it. A change in the price of the good itself causes a movement along the curve (extension or contraction, or in supply a rise or fall in quantity supplied). A change in any other determinant (income, tastes, prices of related goods, technology, input prices, taxes and subsidies) causes a shift of the whole curve. The syllabus asks for the effects of changes both along the curves and by shifts of the curves.

4. Shifts in one curve, the other constant.

Demand rises (rightward shift), supply constant: equilibrium price rises and quantity rises.
Demand falls, supply constant: price falls, quantity falls.
Supply rises (rightward shift), demand constant: price falls, quantity rises.
Supply falls, demand constant: price rises, quantity falls.

In each case the new equilibrium is the new intersection point; the movement along the unshifted curve is the adjustment.

5. Simultaneous shifts in both curves.

Demand and supply both rise: quantity rises for certain; price rises if the demand increase is larger, falls if the supply increase is larger, unchanged if equal.
Demand and supply both fall: quantity falls for certain; price effect depends on which falls more.
Demand rises and supply falls: price rises for certain; quantity depends on the sizes.
Demand falls and supply rises: price falls for certain; quantity depends on the sizes.

Always draw both shifts and state which variable is certain and which is uncertain.

6. Real-world links. Poor monsoon (supply of pulses falls) and festival buying (demand rises) pushes up prices; a new technology that cuts the cost of mobile phones shifts supply to the right and lowers price. (Price ceiling, rationing and floor price are treated in the next topic of this chapter.)

Equilibrium Price and the Effects of Shifts in Demand and Supply: key facts

Equilibrium condition: Quantity demanded = quantity supplied
Equilibrium price (linear): For Qd = a - bP and Qs = c + dP: P = (a - c) / (b + d)
Excess demand: Qd - Qs at a price below equilibrium
Excess supply: Qs - Qd at a price above equilibrium

How to answer Equilibrium Price and the Effects of Shifts in Demand and Supply questions

Market-equilibrium numericals use a schedule or linear functions; the new equilibrium after a shift is found by repeating the same step with the changed function.

1Write Qd and Qs in terms of P (or read the schedule).
2Equate Qd = Qs, solve for P, then substitute for Q.
3For a shift, change the constant term: an increase of k units at every price adds k to the constant of that function.
4Solve again and compare the new P and Q with the old ones.
5For a price other than equilibrium, compute Qd and Qs separately and take the difference to get excess demand or supply.

Equilibrium Price and the Effects of Shifts in Demand and Supply in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Mangoes in the summer market

Suppose a fruit market has demand Qd = 110 - 2P and supply Qs = 2P - 10 (kg in hundreds, P in rupees per kg). A cold wave damages many trees and supply of the fruit falls, while demand stays the same.

What happens to the price and quantity traded? Show the original equilibrium.

Try it first, then show the solutionSolution

Original: 110 - 2P = 2P - 10, so P = 30 and Q = 50.
Supply falls (leftward shift), so price rises and quantity falls.
If supply becomes Qs = 2P - 30: 110 - 2P = 2P - 30 gives P = 35, Q = 40.

Answer: The equilibrium price rises from Rs 30 to Rs 35 and the quantity falls from 50 to 40, as the leftward shift of supply predicts.

Memory hook: Less supply, higher price.

Tricks to remember Equilibrium Price and the Effects of Shifts in Demand and Supply

Short memory aids. Say each one aloud once, then use it on a question the same day.

Both move together: quantity certain
Both curves right: quantity up for sure. Both left: quantity down for sure.
Use it when: Simultaneous shifts.
Opposite shifts: price certain
Demand up and supply down: price up for sure. Demand down and supply up: price down for sure.
Use it when: Simultaneous shifts.
Surplus above, shortage below
Above the equilibrium price there is a surplus, below it a shortage.
Use it when: Disequilibrium questions.

Equilibrium Price and the Effects of Shifts in Demand and Supply: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Direction of change · 1 mark · MCQBoard level

If the demand for a good rises while its supply remains unchanged, the equilibrium price and quantity will:
(a) both fall
(b) price falls, quantity rises
(c) both rise
(d) price rises, quantity falls

Try it first, then show the solutionSolution

A rightward shift of demand along a fixed upward-sloping supply curve raises both price and quantity.

Answer: (c) both rise

Example 2: Equilibrium from functions and disequilibrium · 3 marks · Short answerBoard level

The demand and supply of a good are Qd = 110 - 2P and Qs = 2P - 10 (P in rupees). Find the equilibrium price and quantity. State what happens at P = Rs 20 and at P = Rs 40. (3 marks)

Try it first, then show the solutionSolution

Qd = Qs: 110 - 2P = 2P - 10, so 4P = 120 and P = Rs 30.
Q = 110 - 60 = 50 units (Qs = 60 - 10 = 50).
At P = 20: Qd = 70, Qs = 30; excess demand = 40 units, so price tends to rise.
At P = 40: Qd = 30, Qs = 70; excess supply = 40 units, so price tends to fall.

Answer: Equilibrium P = Rs 30, Q = 50. At Rs 20 there is excess demand of 40; at Rs 40 excess supply of 40.

Example 3: Increase in demand · 4 marks · Short answerHarder board level

With the same supply (Qs = 2P - 10), demand rises by 20 units at every price so that Qd = 130 - 2P. Find the new equilibrium and show the change from the earlier equilibrium (P = 30, Q = 50). Explain the adjustment in terms of excess demand. (4 marks)

Try it first, then show the solutionSolution

New equilibrium: 130 - 2P = 2P - 10, so 4P = 140, P = Rs 35.
Q = 130 - 70 = 60 (Qs = 70 - 10 = 60).
At the old price Rs 30: Qd = 70 and Qs = 50, so excess demand of 20 units.
Price rises; as it rises, quantity demanded contracts and quantity supplied extends until both are 60 at Rs 35.

Answer: Price rises from Rs 30 to Rs 35 and quantity from 50 to 60. The initial excess demand of 20 units at Rs 30 bids the price up along the supply curve.

Example 4: Increase in supply · 4 marks · Short answerHarder board level

With the original demand (Qd = 110 - 2P), supply rises by 20 units at every price so that Qs = 2P + 10. Find the new equilibrium. Compare it with the case of an increase in demand by the same amount. (4 marks)

Try it first, then show the solutionSolution

110 - 2P = 2P + 10, so 4P = 100 and P = Rs 25.
Q = 110 - 50 = 60 (Qs = 50 + 10 = 60).
Increase in supply: price falls (30 to 25), quantity rises (50 to 60). Increase in demand (previous example): price rises (30 to 35), quantity rises (50 to 60).
Quantity rises in both cases; price moves in opposite directions.

Answer: New equilibrium: P = Rs 25, Q = 60 units. A supply increase lowers price; a demand increase raises it, though both raise quantity.

Example 5: Simultaneous shifts · 4 marks · Short answerHOTS / competency

Demand rises to Qd = 130 - 2P. (a) If supply rises by the same 20 units to Qs = 2P + 10, find the equilibrium. (b) If supply rises by 40 units to Qs = 2P + 30, find the equilibrium. What do the two results show about the effect on price? (4 marks)

Try it first, then show the solutionSolution

(a) 130 - 2P = 2P + 10, so P = Rs 30 and Q = 70: price unchanged from the original Rs 30, quantity up by 20.
(b) 130 - 2P = 2P + 30, so 4P = 100, P = Rs 25 and Q = 80: price falls by Rs 5 although demand has risen.
Both curves moving right raises quantity for certain; the price effect depends on which shift is larger (equal, price constant; supply larger, price falls).

Answer: (a) P = Rs 30, Q = 70; (b) P = Rs 25, Q = 80. With both curves shifting right, quantity rises; price rises, stays or falls depending on whether demand, both or supply shifted more.

Where students lose marks in Equilibrium Price and the Effects of Shifts in Demand and Supply

The slips examiners see most often, and what to write instead.

Mistake: Calling a price-caused change a 'shift'
Not separating the two kinds of change.
Wrong working
When price falls, demand increases (shifts right).
Right working
When price falls, quantity demanded extends along the same demand curve; demand shifts only when a non-price factor changes.
Do this: Use 'extension/contraction' for price changes, 'increase/decrease' for shifts.
Usually costs: 1-2 marks.
Mistake: Giving both effects for simultaneous shifts
Over-claiming certainty.
Wrong working
If demand and supply both rise, price rises and quantity rises.
Right working
Quantity rises for certain; price may rise, fall or stay the same depending on the relative size of the shifts.
Do this: State clearly which variable is uncertain.
Usually costs: 2 marks.
Mistake: Slip in adding the shift to the function
Subtracting instead of adding for an increase.
Wrong working
Demand rises by 20: Qd = 90 - 2P.
Right working
Qd = 110 + 20 - 2P = 130 - 2P.
Do this: A rightward shift adds the same quantity at each price.
Usually costs: 1-2 marks.
Mistake: No diagram or an unlabelled one
Writing only in words.
Wrong working
Curves drawn with no E0, E1, D0, D1 labels.
Right working
Label D0, D1, S, E0, E1, the price and quantity on the axes.
Do this: Label every curve and point.
Usually costs: 1-2 marks.

Exam tips

Draw the diagram first, mark the old and new equilibrium (E0, E1) and read off the changes.
Write 'rightward shift of the demand curve from D0 to D1' rather than 'demand curve moves up'.
In numericals, show the equating step, the solved P, then Q, then the check Qd = Qs.
For simultaneous shifts, say which is certain (quantity for same-direction shifts, price for opposite shifts).
Use Indian examples (monsoon and crop supply, festival demand) as the syllabus encourages.

Practice questions on Equilibrium Price and the Effects of Shifts in Demand and Supply

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
When sellers find unsold stock piling up at the current price, competition among them will:
(a) raise the price
(b) lower the price
(c) shift the demand curve to the right
(d) shift the supply curve to the left
Hint
Unsold stock means excess supply.
Answer
(b) lower the price
Q2 · 3 marks · Short answerBoard level
The demand and supply of a good are Qd = 200 - 4P and Qs = 4P - 40. Find the equilibrium price and quantity, and the excess supply at a price of Rs 35. (3 marks)
Hint
Set Qd = Qs, then substitute P = 35.
Answer
200 - 4P = 4P - 40, so 8P = 240, P = Rs 30 and Q = 80. At Rs 35: Qd = 60 and Qs = 100, so excess supply = 40 units.
Q3 · 4 marks · Short answerHarder board level
With Qs = 4P - 40, demand falls by 24 units at every price so that Qd = 176 - 4P. Find the new equilibrium and the change from P = 30, Q = 80. (4 marks)
Hint
Equate again.
Answer
176 - 4P = 4P - 40, so 8P = 216, P = Rs 27 and Q = 176 - 108 = 68. Price falls by Rs 3 and quantity by 12 units, following the leftward shift of demand.
Q4 · 4 marks · Short answerHarder board level
With Qd = 200 - 4P, supply falls by 16 units at every price so that Qs = 4P - 56. Find the new equilibrium and explain the direction of change. (4 marks)
Hint
A fall in supply subtracts from the constant.
Answer
200 - 4P = 4P - 56, so 8P = 256, P = Rs 32 and Q = 200 - 128 = 72. Price rises from Rs 30 to Rs 32 and quantity falls from 80 to 72: the leftward shift of supply raises price and cuts quantity.
Q5 · 3 marks · Short answerHOTS / competency
Starting from Qd = 200 - 4P and Qs = 4P - 40 (equilibrium P = 30, Q = 80), demand rises by 24 units and supply rises by 16 units at every price. Find the new equilibrium and explain why the price change could not be predicted in advance without numbers. (3 marks)
Hint
Demand: 224 - 4P; supply: 4P - 24.
Answer
224 - 4P = 4P - 24, so 8P = 248, P = Rs 31 and Q = 224 - 124 = 100. Quantity rises for certain (80 to 100), but price rose only because the demand shift (24) was larger than the supply shift (16); if supply had risen by more than demand, price would have fallen.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Equilibrium condition?Show answer
Quantity demanded = quantity supplied.
2.What happens below the equilibrium price?Show answer
Excess demand, pushing price up.
3.Supply increases, demand constant: effect?Show answer
Price falls, quantity rises.
4.Demand and supply both rise: certain effect?Show answer
Quantity rises.
5.Demand up, supply down: certain effect?Show answer
Price rises.

Equilibrium Price and the Effects of Shifts in Demand and Supply: frequently asked questions

What is equilibrium price?

The price at which quantity demanded equals quantity supplied.

What is the difference between a shift and a movement?

A shift is caused by non-price factors; a movement along the curve is caused by a change in the good's own price.

What happens if both demand and supply rise?

Quantity rises; price depends on which shift is larger.

How is excess demand removed?

Competition among buyers raises the price until demand and supply are equal.