How shifts in demand and supply affect equilibrium Consider the market for pens

When a new educational study has proven that the practice of writing, erasing, and rewriting improves students' ability to process information, it leads to parents to steer away from pen use in favor of pencils. Pencils are substitutes for pens. When pencils are being more in demand, the demand for pens decreases. This will cause a downward shift in the demand curve of pens.

In addition, the price of plastic, an important input in pen production, has increased considerably. This will make the cost of production increased significantly. When cost of production increases, the supply declines,causing a leftward shift in supply curve. Hence, the supply curve will shift left side.

Decrease in demand causes decrease in output and decrease in price. On the other hand, decrease in supply causes decrease in output but increase in price. From these two events taking place simultaneously, the output of pens will reduce but the change in price will not be ascertained as magnitude of change in demand and supply are unknown. If decrease in demand is more than decrease in supply, the price will increase, otherwise, it will fall.