Unit 4: The Market Forces of Supply and Demand
The single most-used diagram in economics: two curves, where they cross, and the difference between sliding along one and shifting it.
5 topics · 18 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 Demand Curve and the Law of Demand
- How it worksHow does plotting price against quantity demanded trace out a downward-sloping demand curve?
- Worked exampleFind the quantity demanded of coffee at 3 dollars a cup versus 5 dollars a cup from a demand schedule.
- Common mistakeWhy doesn't a higher price for one good automatically mean people buy less of everything?
- Going furtherWhat happens to the demand curve itself if a popular trend makes iced coffee suddenly fashionable?
Your turn1 of 2
Find the quantity demanded of coffee at 7 dollars a cup when Qd = 122 minus 11 times P.A Shift in Demand vs a Movement Along It
- How it worksHow does a change in price move you along a fixed demand curve while a change in income or tastes shifts the whole curve?
- Worked exampleWalk me through what happens to the demand curve for tea when the price of coffee, a substitute, rises.
- Common mistakeWhy doesn't a rise in the price of a good count as a decrease in demand for it?
- Going furtherWhat happens to a demand curve for a normal good when consumers' income falls in a recession?
Your turn1 of 2
The price of gas rises, and drivers buy less gas, sliding to a new point on the same demand curve. A headline calls this 'a decrease in demand for gas.' Is this instead a movement along the existing demand curve?The Supply Curve and the Law of Supply
- How it worksHow does plotting price against quantity supplied trace out an upward-sloping supply curve?
- Worked exampleFind the quantity supplied of wheat at 4 dollars a bushel versus 6 dollars a bushel from a supply schedule.
- Common mistakeWhy isn't a supply curve just a mirror image of a firm's costs with no separate story of its own?
Your turn1 of 2
Find the quantity supplied of wheat at 11 dollars a bushel when Qs = 10 times P minus 29.A Shift in Supply vs a Movement Along It
- How it worksHow does a new lower-cost technology shift a supply curve to the right at every price?
- Common mistakeWhy doesn't a rise in a good's own price count as an increase in its supply?
- Going furtherWhat happens to a supply curve for gasoline when the price of the crude oil that makes it rises?
Your turn1 of 2
A seller needed a price of 41 dollars to be willing to supply the first unit of a good. After the cost of a key input rises, the seller now needs 11 dollars more than before to supply that same first unit. What price does the seller now require?Market Equilibrium, Shortages, and Surpluses
- How it worksHow does the price naturally rise or fall until quantity supplied and quantity demanded meet at the equilibrium?
- Worked exampleFind the equilibrium price and quantity in a market where quantity demanded equals 100 minus 2 times price and quantity supplied equals 4 times price minus 20.
- Common mistakeWhy doesn't a surplus of unsold goods sit around forever in a free market?
- Ties togetherHow do simultaneous shifts in the supply and demand curves combine to move a market's equilibrium?
Your turn1 of 2
Find the equilibrium price in a market where quantity demanded equals 122 minus 2 times price and quantity supplied equals 5 times price minus 16.