FIGURE 3.19 Combined Effect of Decreased Demand and Decreased Supply Supply and demand shifts cause

changes in equilibrium price and quantity.

Following are the results:

Effect on Quantity: The effect of higher labor compensation on Postal Services because it raises the cost of

production is to decrease the equilibrium quantity. The effect of a change in tastes away from snail mail is to

decrease the equilibrium quantity. Since both shifts are to the left, the overall impact is a decrease in the
equilibrium quantity of Postal Services (Q3). This is easy to see graphically, since Q3 is to the left of Q0.

Effect on Price: The overall effect on price is more complicated. The effect of higher labor compensation on

Postal Services, because it raises the cost of production, is to increase the equilibrium price. The effect of a

change in tastes away from snail mail is to decrease the equilibrium price. Since the two effects are in opposite
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