Unit 2: Supply and Demand
How millions of separate buyers and sellers land on one price with nobody in charge, and what makes that price move.
9 topics · 36 questions
Each topic is a path, not a menu: work down it in order and every question builds on the one above. Click any of them to watch the answer draw itself.
The Law of Demand
- How it worksHow does a downward-sloping demand curve show less quantity demanded at every higher price?
- Worked exampleFind the change in quantity demanded when demand is Qd = 100 - 4P and price rises from 10 to 15 dollars.
- Common mistakeWhy doesn't a higher price ever make people want to buy more of an ordinary good?
- Going furtherWhat happens to the demand curve for a good that has almost no substitutes at all?
Your turn1 of 2
Demand for a product follows Qd = 105 - 4P. If price rises from 11 to 13 dollars, what is the change in quantity demanded?Determinants of Demand
- How it worksHow do income, tastes, the price of related goods, expectations, and the number of buyers each move demand?
- Worked exampleFind whether demand for coffee rises or falls when the price of tea, a substitute, rises by 30 percent.
- Common mistakeWhy isn't a change in a good's own price one of the things that shifts its demand curve?
- Going furtherWhat happens to the demand curve for a normal good when consumer income falls during a recession?
Your turn1 of 2
A normal good's demand is given by Qd = 50 + 2Y - 3P, where Y is income in thousands of dollars and P is price in dollars. If income is 34 thousand dollars and price is 11 dollars, what is the quantity demanded?Shift Versus Movement Along the Demand Curve
- How it worksHow does a change in price move you along a fixed demand curve instead of shifting the whole curve?
- How it worksHow does a change in income or tastes shift an entire demand curve to a new position?
- Common mistakeWhy isn't a drop in quantity demanded after a price hike the same thing as demand actually decreasing?
- Worked exampleFind whether a rise in the price of gasoline that cuts quantity demanded from 100 to 80 gallons is a shift or a movement.
- Common mistakeWhy isn't a leftward shift of the whole demand curve just an especially large movement along the original curve?
Your turn1 of 2
Economists carefully distinguish a shift of the demand curve from a movement along it. Why do economists insist on two different words for a curve sliding sideways and a point sliding along it?The Law of Supply
- How it worksHow does an upward-sloping supply curve show more quantity supplied at every higher price?
- Worked exampleFind the change in quantity supplied when supply is Qs = 20 + 3P and price rises from 10 to 20 dollars.
- Common mistakeWhy doesn't a higher price for a good ever make sellers want to offer less of it?
Your turn1 of 2
Supply for a product follows Qs = 22 + 3P. If price rises from 12 to 17 dollars, what is the change in quantity supplied?Determinants of Supply
- How it worksHow do input costs, technology, expectations, the number of sellers, and taxes each shift the supply curve?
- Worked exampleFind whether the supply of bread rises or falls when a new oven technology cuts baking costs by 20 percent.
- Common mistakeWhy isn't a change in the price of the good itself one of the things that shifts its own supply curve?
- Going furtherWhat happens to the supply curve for oil once a new tax is placed on every barrel drilled?
Your turn1 of 2
A firm's supply is given by Qs = 100 - 2C + 5P, where C is input cost per unit in dollars and P is price in dollars. If input cost is 17 dollars and price is 16 dollars, what is the quantity supplied?Shift Versus Movement Along the Supply Curve
- How it worksHow does a movement along the supply curve differ from the whole curve shifting to a new position?
- Worked exampleFind whether a rise in the price of oil that raises quantity supplied from 100 to 140 barrels a day is a shift or a movement.
- Common mistakeWhy isn't more oil getting pumped after a price spike the same thing as supply actually increasing?
- Common mistakeWhy isn't a rightward shift of the whole supply curve just an especially large movement along the original curve?
- Going furtherWhat happens to a supply curve when a hurricane shuts down half the refineries in a region?
Your turn1 of 2
A rising oil price and a brand new drilling technology can both raise the amount of oil pumped. Why do a rising oil price and a new drilling technology both raise the amount of oil pumped, but only one shifts the curve?Market Equilibrium
- How it worksHow does the price where a supply curve and a demand curve cross become the market equilibrium?
- Worked exampleFind equilibrium price and quantity when Qd = 200 - 10P and Qs = 20 + 5P.
- Common mistakeWhy isn't equilibrium the price that feels fair rather than the price where the two curves cross?
- Going furtherWhat happens to equilibrium price and quantity when both demand and supply increase at the same time?
Your turn1 of 2
In a market, Qd = 208 - 11P and Qs = 24 + 5P. What is the equilibrium price, in dollars, for this market?Shortages and Surpluses
- How it worksHow does a price below equilibrium create a shortage that pushes the market price back upward?
- Worked exampleFind the size of the shortage when price is held at 8 dollars, Qd = 100 - 5P, and Qs = 20 + 5P.
- Common mistakeWhy doesn't a shortage mean a good has literally run out everywhere in the market?
- Going furtherWhat happens to a surplus of unsold goods sitting on shelves once a store finally cuts the price?
Your turn1 of 2
In a market, Qd = 102 - 5P and Qs = 21 + 5P. If price is held at 5 dollars, what is the size of the shortage, in units?Price as a Signal
- How it worksHow does a single price carry information about scarcity to millions of buyers and sellers at once?
- Common mistakeWhy isn't the price system just a tool for making sellers rich rather than allocating scarce resources?
- Ties togetherHow does a price acting as a signal connect back to a market settling at its own equilibrium price?
Your turn1 of 2
When lumber prices rise, loggers cut more trees, carpenters use lumber more sparingly, and buyers look for substitutes, all without a single meeting between them. Why does a rising price get everyone moving in the right direction without a memo?