Unit 2: Supply, Demand, and Elasticity
Two curves that never stop moving: what pushes each one, where they meet, and how sharply quantity reacts when price changes.
14 topics · 52 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 a demand schedule of price and quantity pairs turn into a downward-sloping demand curve?
- How it worksWalk me through why the law of demand holds all else equal, like income and the price of other goods.
- Worked exampleFind the quantity demanded at a price of 3 dollars when Qd = 100 - 10P.
- Common mistakeWhy doesn't a change in quantity demanded from a price move count as a change in demand itself?
Your turn1 of 2
Find the quantity demanded at a price of 6 dollars when Qd = 142 minus 7 times P.What Shifts the Demand Curve
- How it worksHow do a rise in income, a change in tastes, or more buyers entering a market each push the demand curve outward?
- How it worksWalk me through how a price change in a substitute or a complement good shifts demand for the good you're studying.
- Going furtherWhat happens to the demand curve for a good when buyers start expecting its price to rise next month?
- Common mistakeWhy doesn't a fall in the price of the good itself shift its own demand curve to the right?
Your turn1 of 2
A popular influencer promotes a brand of sneakers, and more people now want to buy them at every price. What happened to the demand curve for those sneakers?The Supply Curve and the Law of Supply
- How it worksHow does a supply schedule of price and quantity pairs turn into an upward-sloping supply curve?
- How it worksWalk me through why sellers offer more of a good as its price rises, holding costs and technology fixed.
- Worked exampleFind the quantity supplied at a price of 5 dollars when Qs = 20 + 8P.
- Common mistakeWhy doesn't a higher quantity supplied from a price rise count as an increase in supply itself?
Your turn1 of 2
Find the quantity supplied at a price of 15 dollars when Qs = 8 times P minus 23.What Shifts the Supply Curve
- How it worksHow does a cheaper input price or a better production technology push the supply curve to the right?
- How it worksWalk me through how a new tax on producers or a jump in the number of sellers moves the supply curve.
- Going furtherWhat happens to the supply curve for a crop when farmers expect its price to fall next season?
- Common mistakeWhy doesn't a change in the good's own price count as a shift of the supply curve itself?
Your turn1 of 2
A supply curve is Qs = 8 times P minus 23. A new production technology lowers costs so that at every price, quantity supplied rises by 19 units. What is the new quantity supplied at a price of 11 dollars?Market Equilibrium and Market Clearing
- How it worksHow does the point where the supply and demand curves cross pin down one price and one quantity?
- Worked exampleFind the equilibrium price and quantity when Qd = 120 - 4P and Qs = 20 + 6P.
- How it worksWalk me through how buyers and sellers push price back toward equilibrium whenever it drifts away.
- Common mistakeWhy doesn't market equilibrium mean every buyer and seller is happy with the price they got?
- Going furtherWhat happens to equilibrium price and quantity if sellers are legally blocked from changing the price?
Your turn1 of 2
Find the equilibrium price, in dollars, when Qd = 162 minus 5 times P and Qs = 38 plus 5 times P.Shifts in a Curve Versus Movements Along It
- Common mistakeWhy isn't a drop in quantity demanded after a price hike called a decrease in demand?
- How it worksHow do you tell whether a change in the market is a movement along a curve or a shift of the whole curve?
- Common mistakeWhy doesn't a change in a good's own price ever shift its demand or supply curve to a new position?
- Going furtherWhat happens on the graph when both a price change and an income change hit a market in the same week?
Your turn1 of 2
The price of a smartphone rises, and fewer units are sold at the new, higher price, sliding to a new point on the same demand curve. A news article calls this 'a decrease in demand for smartphones.' Which term describes what happened here?Double Shifts: When Supply and Demand Move at Once
- How it worksHow do you figure out which outcome is certain and which is ambiguous when supply and demand both shift?
- Worked exampleFind what happens to price and quantity when demand rises from Qd = 100 - 2P to Qd = 140 - 2P while supply rises from Qs = 20 + 3P to Qs = 60 + 3P.
- Going furtherWhat happens to the ambiguous outcome once you learn the demand shift was much bigger than the supply shift?
Your turn1 of 2
Demand rises from Qd = 88 minus 4 times P to Qd = 139 minus 4 times P, while supply rises from Qs = 16 plus 2 times P to Qs = 32 plus 2 times P. What is the new equilibrium price, in dollars?Shortages, Surpluses, and the Return to Equilibrium
- How it worksHow does competition among frustrated buyers or unsold sellers push a price back toward equilibrium?
- Worked exampleFind the size of the shortage at a price of 8 dollars when Qd = 100 - 4P and Qs = 20 + 6P.
- Going furtherWhat happens to a surplus of unsold goods if sellers refuse to lower the price at all?
Your turn1 of 2
Find the size of the shortage at a price of 3 dollars when Qd = 128 minus 3 times P and Qs = 19 plus 3 times P.Measuring Price Elasticity of Demand
- How it worksHow do you turn a percentage change in quantity and a percentage change in price into one elasticity number?
- Worked exampleFind the price elasticity of demand when price rises from 40 dollars to 50 dollars and quantity falls from 100 to 80 units.
- Common mistakeWhy isn't the slope of a demand curve the same thing as its price elasticity of demand?
Your turn1 of 2
Price rises from 27 to 45 dollars, and quantity demanded falls from 117 to 48 units. Using the midpoint method, what is the price elasticity of demand, as a positive magnitude?Elastic, Inelastic, and Unit-Elastic Demand
- How it worksHow do you decide whether a demand curve counts as elastic, inelastic, or unit elastic from its number?
- Worked exampleFind whether demand is elastic, inelastic, or unit elastic when an elasticity calculation comes out to 1.8.
- Going furtherWhat happens to a demand curve's elasticity classification as you slide from its top toward its bottom?
- Common mistakeWhy doesn't the size of a price change by itself tell you whether demand is elastic or inelastic?
Your turn1 of 2
A price cut of 15 percent raises quantity demanded by 26 percent. What is the price elasticity of demand, as a positive magnitude?What Makes Demand Elastic or Inelastic
- How it worksHow do the number of substitutes and whether a good is a necessity or a luxury shape its elasticity?
- How it worksWalk me through how a good eating up a big share of your budget makes its demand more sensitive to price.
- Going furtherWhat happens to a good's elasticity of demand when you compare the response over a week versus over five years?
Your turn1 of 2
Insulin has very few substitutes and is a necessity for people with diabetes, while a specific brand of soda has many close substitutes and is a discretionary purchase. Which good's demand is more elastic?Elasticity and Total Revenue
- How it worksHow does the total-revenue effect of a price change flip depending on whether demand is elastic or inelastic?
- Worked exampleFind the change in total revenue when a price cut from 20 dollars to 16 dollars raises quantity from 100 to 150 units.
- Worked exampleFind the change in total revenue when a price cut from 10 dollars to 8 dollars raises quantity from 100 to 110 units.
- Common mistakeWhy doesn't raising the price of a product always increase the total revenue a business collects?
Your turn1 of 2
A seller charges 23 dollars and sells 117 units, then cuts the price to 14 dollars and sells 157 units. What is the change in total revenue?Price Elasticity of Supply
- How it worksHow does the ability to ramp up production quickly shape how responsive supply is to a price change?
- Worked exampleFind the price elasticity of supply when price rises from 10 dollars to 12 dollars and quantity supplied rises from 200 to 260 units.
- Going furtherWhat happens to the price elasticity of supply for a factory good as you stretch the time horizon from a week to a decade?
Your turn1 of 2
Price rises from 13 to 23 dollars, and quantity supplied rises from 147 to 202 units. Using the midpoint method, what is the price elasticity of supply?Cross-Price and Income Elasticity of Demand
- How it worksHow does the sign of an elasticity number reveal whether two goods are substitutes or complements?
- Worked exampleFind the cross-price elasticity of demand when a 10 percent rise in the price of tea raises the quantity of coffee demanded by 4 percent.
- Worked exampleFind the income elasticity of demand when a 5 percent rise in income raises quantity demanded of a good by 15 percent.
- Going furtherWhat happens to income elasticity when a good that was once a luxury turns into a normal daily habit?
Your turn1 of 2
The price of tea rises 12 percent, and the quantity of coffee demanded rises 7 percent. What is the cross-price elasticity of demand between coffee and tea?