curve with movement along a demand or supply curve. As an example, consider a problem that asks whether a

drought will increase or decrease the equilibrium quantity and equilibrium price of wheat. Lee, a student in an

introductory economics class, might reason:

“Well, it is clear that a drought reduces supply, so I will shift back the supply curve, as in the shift from the original
supply curve S0 to S1 on the diagram (Shift 1). The equilibrium moves from E0 to E1, the equilibrium quantity is lower
and the equilibrium price is higher. Then, a higher price makes farmers more likely to supply the good, so the supply
curve shifts right, as shows the shift from S1 to S2, shows on the diagram (Shift 2), so that the equilibrium now
moves from E1 to E2. The higher price, however, also reduces demand and so causes demand to shift back, like the
70 3 • Demand and Supply
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