How do shortages and surpluses push price toward equilibrium, and what happens when one or both curves shift?
Topic 2.7 Market Disequilibrium and Changes in Equilibrium: explain how shortages and surpluses arise and self-correct, predict the new equilibrium after a single shift, and handle the indeterminate cases of a double shift.
A focused answer to AP Microeconomics Topic 2.7, covering shortages and surpluses, how price adjusts to clear a market, the four single-shift outcomes, and the indeterminate results of a double shift, with worked exam-style questions.
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What this topic is asking
Topic 2.7 puts supply and demand in motion. The College Board wants you to explain how a shortage or surplus arises when price is away from equilibrium and how price self-corrects, predict the new equilibrium after a single shift of supply or demand, and handle the double-shift cases where one of price and quantity is indeterminate. This is the most heavily examined skill in Unit 2.
Shortages, surpluses, and self-correction
Disequilibrium does not last in a free market. A surplus leaves sellers with unsold goods, so they cut prices, which raises quantity demanded and lowers quantity supplied until the market clears. A shortage leaves buyers unable to find the good, so they bid the price up, which lowers quantity demanded and raises quantity supplied until it clears. This automatic adjustment toward equilibrium is the price mechanism at work, and it matters because government price controls (Topic 2.8) block it, locking in a shortage or surplus.
The four single-shift outcomes
When exactly one curve shifts, both the new price and new quantity are determinate. Memorize the four cases:
A quick way to see these: with demand shifts, price and quantity move together; with supply shifts, price and quantity move opposite ways. Redraw the curve, find the new intersection, and read off the result.
Double shifts and indeterminacy
When both curves shift, you can always pin down one of price and quantity but not the other.
For example, if demand increases and supply increases (both shift right), quantity definitely rises (both push it up), but price is indeterminate (the demand shift pushes price up, the supply shift pushes it down). The four double-shift combinations each leave a different variable indeterminate, so always reason it out from the two individual effects.
Try this
Q1. Supply increases while demand is unchanged. State the effect on equilibrium price and quantity. [2 points]
- Cue. Price falls and quantity rises (a single rightward supply shift).
Q2. Both demand and supply decrease (both shift left). State which of price and quantity is indeterminate. [2 points]
- Cue. Quantity definitely falls (both push it down); price is indeterminate (the demand fall pushes price down, the supply fall pushes it up).
Exam-style practice questions
Practice questions written in the style of College Board exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AP 2018 (style)1 marksMultiple choice. If the current price in a market is above the equilibrium price, there will be (A) a shortage and upward pressure on price. (B) a surplus and downward pressure on price. (C) equilibrium with no pressure. (D) a shortage and downward pressure on price. (E) a surplus and upward pressure on price.Show worked answer →
The answer is (B). Above the equilibrium price, quantity supplied exceeds quantity demanded, creating a surplus; unsold goods push sellers to cut price, so price falls toward equilibrium.
(A) and (D) describe a shortage, which happens below equilibrium. (C) is wrong because price is not at equilibrium. (E) has the wrong pressure direction for a surplus.
AP 2021 (style)4 marksFree response. In the market for new homes, the price of lumber (an input) rises at the same time as consumer incomes rise (homes are a normal good). (a) State the effect on supply and explain. (b) State the effect on demand and explain. (c) Determine the effect on equilibrium price. (d) Explain why the effect on equilibrium quantity is indeterminate.Show worked answer →
A four-point double-shift FRQ.
(a) (1 point): supply decreases (shifts left) because a higher input cost raises production costs.
(b) (1 point): demand increases (shifts right) because higher income raises demand for a normal good.
(c) (1 point): equilibrium price definitely rises, because both a leftward supply shift and a rightward demand shift push price up.
(d) (1 point): equilibrium quantity is indeterminate because the supply decrease pushes quantity down while the demand increase pushes it up; the net effect depends on the relative sizes of the two shifts.
Related dot points
- Topic 2.1 Demand: state the law of demand, distinguish a change in quantity demanded from a change in demand, and identify the determinants that shift the demand curve.
A focused answer to AP Microeconomics Topic 2.1, covering the law of demand, the difference between a movement along and a shift of the demand curve, the determinants of demand, and the income and substitution effects, with worked exam-style questions.
- Topic 2.2 Supply: state the law of supply, distinguish a change in quantity supplied from a change in supply, and identify the determinants that shift the supply curve.
A focused answer to AP Microeconomics Topic 2.2, covering the law of supply, the difference between a movement along and a shift of the supply curve, the determinants of supply, and why the curve slopes upward, with worked exam-style questions.
- Topic 2.6 Market Equilibrium and Consumer and Producer Surplus: find equilibrium price and quantity, identify consumer and producer surplus on a graph, and explain why the competitive equilibrium maximizes total surplus (allocative efficiency).
A focused answer to AP Microeconomics Topic 2.6, covering how supply and demand determine equilibrium price and quantity, the measurement of consumer and producer surplus, total surplus, and why the competitive equilibrium is allocatively efficient, with worked exam-style questions.
- Topic 2.8 The Effects of Government Intervention in Markets: analyze binding price ceilings and floors, per-unit taxes and subsidies, and quantity controls, showing the resulting shortages, surpluses, tax incidence, and deadweight loss.
A focused answer to AP Microeconomics Topic 2.8, covering binding price ceilings and floors, per-unit excise taxes and subsidies, tax incidence and elasticity, quantity controls (quotas), and the deadweight loss intervention creates, with worked exam-style questions.
- Topic 2.3 Price Elasticity of Demand: calculate price elasticity of demand using the midpoint formula, classify demand as elastic, inelastic, or unit elastic, apply the total revenue test, and identify the determinants of elasticity.
A focused answer to AP Microeconomics Topic 2.3, covering the price elasticity of demand, the midpoint formula, elastic versus inelastic versus unit elastic demand, the total revenue test, perfectly elastic and inelastic cases, and the determinants of elasticity, with worked exam-style questions.
Sources & how we know this
- AP Microeconomics Course and Exam Description — College Board (2023)