Shift	Quantity Change	Price Change
Single Shift
Demand Increase	Increase	Increase
Demand Decrease	Decrease	Decrease
Supply Increase	Increase	Decrease
Supply Decrease	Decrease	Increase
Double Shifts
Demand and Supply Increase	Increase	Indeterminant
Demand and Supply Decrease	Decrease	Indeterminant
Demand Increase and Supply Decrease	Indeterminant	Increase
Demand Decrease and Supply Increase	Indeterminant	Decrease

The table to the right summarizes the eight alternative market adjustments. The first four listed involve a shift in EITHER the demand curve OR the supply curve. The second four involve shifts in BOTH the demand curve AND the supply curve.

Like Moving to a New House

In the end, it was goodbye familiar, comfortable home. So long old friends. Hello new, different place. A residential relocation such as this, even without profanity, tends to be very disruptive. Duncan's OLD, comfortable lifestyle was thrown out of whack as he left his family, friends, and familiar settings. But he adjusted. He eventually established a NEW, comfortable lifestyle.

Markets adjustments are similar. In the same way that people are comfortable in their old familiar homes, markets are accustomed to their old familiar equilibrium price and quantity. Then moving day comes. The market is disrupted. Well-meaning friends pack up the equilibrium price and quantity as they depart to a new location.

The analysis of market adjustments is THE prime analytical use of the market model. Like Duncan's well-meaning friends used screw drivers, wrenches, and crowbars as tools to disassemble (and move) his bed, economists use the market as a tool to disassemble (and understand) the economic world.

The Market Adjusts

Consider three questions that spring forth from this moving analogy.

• First, what causes the move? Many reasons might have motivated Duncan's residential relocation. Perhaps he had a new job. Perhaps a tornado, flood, or other natural disaster forced him to relocate. Perhaps he just did not like the weather where he was living. Perhaps he just did not like his neighbors. Perhaps he was merely looking for a really good hot fudge sundae. Much like people move for many reasons, so too do markets. The specific reasons are the five demand determinants and the five supply determinants.


• Second, what are the consequences? The short term consequence of Duncan's residential relocation was a disrupted life that was thrown out of whack. In the long term, however, he adjusted to the new setting. He grew use to the new house, new neighborhood, new job, new shopping, new schools, and new friends. The same goes for a market. While it is temporarily disrupted, it reaches a new equilibrium, at a new price and quantity.


• Third, is the move good or bad? Did Duncan enjoy his new lifestyle more than the old? Are his neighbors friendlier? Does his job pay more? Has the weather improved? Did he find a better hot fudge sundae? The analysis of market adjustments involves comparable questions. Has the disruption increased or decreased quantity? Does the new equilibrium have a higher or lower price?

Six Adjustment Steps

1. A determinant changes. It could be demand determinant, a supply determinant, or both. A determinant change ALWAYS starts the market adjustment process. In fact, the market adjustment process is essentially the analysis of how a determinant change affects the market.


2. The determinant change causes a curve to shift. A demand determinant causes a shift in the demand curve and a supply determinant causes a shift in the supply curve. These shifts are what graphically throw the market out of balance.


3. The shifted curve disrupts the market equilibrium, causing either a shortage or a surplus. An increase in demand or a decrease in supply create a shortage. A decrease in demand or an increase in supply create a surplus. The shortage or surplus imbalance emerges because the original equilibrium price is unchanged, at least for the time being.


4. The market imbalance causes the price to change. A shortage causes the price to rise as buyers bid up the price. A surplus causes the price to fall as sellers bid down the price.


5. The change in price causes changes in both quantities demanded and supplied. The price change generally has an intended effect and an unintended effect. With a shortage, buyers bid up the price with the intention of increasing the quantity supplied. But the higher price also has the unintended effect of decreasing the quantity demanded. With a surplus, sellers bid down the price with the intention of increasing the quantity demanded. But the lower price also has the unintended effect of decreasing the quantity supplied.


6. Changes in the quantities demanded and supplied both act to eliminate the market imbalance. The price continues to change as long as the market is out of balance with a shortage or surplus.