The simultaneous shifts of both the demand curve and the supply curve can happen in which of the following ways?

I. Supply curve shifts leftward and demand curve shifts rightward.

II. Both supply and demand curves shift leftwards.

III. Supply curve shifts rightward and demand curve shifts leftward.

Question

Question

This question was previously asked in

SSC CHSL Tier-I Exam 2022 Official Paper (Held On: 16 March, 2023 Shift 3)

Answer 1

The correct answer is I, II and III.

Key Points

The supply curve shifts leftward and demand curve shifts rightward.
- This combination of shifts will lead to an increase in the equilibrium price and a decrease in the equilibrium quantity.
- For example, if there is a natural disaster that destroys a large portion of the cropland, then the supply curve for food will shift leftward.
- At the same time, if people's incomes increase, then the demand curve for food will shift rightward.
- The net effect of these two shifts will be an increase in the price of food and a decrease in the quantity of food that is consumed.

Hence statement I is correct.

Both supply and demand curves shift leftwards.
- This combination of shifts will lead to a decrease in the equilibrium price and a decrease in the equilibrium quantity.
- For example, if there is a strike by workers in the auto industry, then the supply curve for cars will shift leftward.
- At the same time, if people's incomes decrease, then the demand curve for cars will shift leftward.
- The net effect of these two shifts will be a decrease in the price of cars and a decrease in the quantity of cars that are sold.

Hence statement II is correct.

Supply curve shifts rightward and demand curve shifts leftward.
- This combination of shifts will lead to an ambiguous change in the equilibrium price and a decrease in the equilibrium quantity.
- For example, if there is a technological breakthrough that makes it cheaper to produce cars, then the supply curve for cars will shift rightward.
- At the same time, if people's incomes decrease, then the demand curve for cars will shift leftward.
- The net effect of these two shifts will be a decrease in the equilibrium quantity of cars, but the direction of the change in the equilibrium price is ambiguous.

Hence statement III is correct.