interactions between demand, supply and price

What is Demand?

Demand is the amount of a product that consumers are willing and able to buy at different prices. Think of it as a “shopping list” that changes when the price changes.

• 📈 When the price drops, the quantity demanded usually rises.
• 📉 When the price rises, the quantity demanded usually falls.
• 🔄 Demand is represented by the equation \$Q_d = a - bP\$, where \$P\$ is price.

Example: If a new smartphone drops from \$999 to \$799, more students want to buy it, so the quantity demanded increases.

What is Supply?

Supply is the amount of a product that producers are willing and able to sell at different prices. It’s like a “stock list” that grows when the price rises.

• 📈 When the price rises, the quantity supplied usually rises.
• 📉 When the price falls, the quantity supplied usually falls.
• 🔄 Supply is represented by the equation \$Q_s = c + dP\$.

Example: If coffee beans become cheaper, coffee shops can buy more beans and produce more cups of coffee, increasing the quantity supplied.

Price Determination: The Intersection

The market price is where the demand curve meets the supply curve. At this point, the quantity demanded equals the quantity supplied.

Here, at $700, the market clears: 300 units are demanded and 300 units are supplied.

Exam Tip Box

1. Identify whether a change is a shift (movement of the whole curve) or a movement along the curve (change in quantity).
2. Use the symbols ΔQ for change in quantity and ΔP for change in price.
3. Remember: Demand shift right → higher price & quantity; Supply shift right → lower price & higher quantity.
4. When answering, always show the new equilibrium point on a diagram if possible.

Quick Analogy: The Marketplace as a Dance Floor

Imagine the market as a dance floor. Demanders are the dancers who want to move; Suppliers are the music that keeps them moving. When the music (price) is just right, everyone moves in sync (equilibrium). If the music speeds up (price rises), more dancers join (quantity supplied increases). If the music slows (price falls), fewer dancers stay (quantity demanded decreases).