Supply & Demand

The workhorse of economics: how buyers and sellers set price and quantity in a single market.

Equilibrium: Q* = 50.0, P* = 40.0

Current equations

D: P = 80 − 0.8·QS: P = 10 + 0.6·Q

One market, two forces. The demand curve shows how much buyers want at each price; the supply curve shows how much sellers offer. Where they cross is the equilibrium, the price at which the market clears. Move the sliders to shift each curve and watch the equilibrium respond.

Source: Mankiw, Principles of Economics, ch. 4-6

Shift the curves

Demand shifters (income, tastes, related goods)0

Anything that changes willingness to buy at every price shifts D.

Supply shifters (input costs, technology, taxes)0

Anything that changes cost of producing each unit shifts S.

Worked examples

The Supply & Demand model, in writing

Definition

The workhorse of economics: buyers' willingness to pay (demand) and sellers' willingness to sell (supply) meet at one price where the quantity demanded equals the quantity supplied.

Qd(P) = Qs(P) at equilibrium price P*

The intuition

If price sits above equilibrium, sellers can't find enough buyers and unsold stock pushes price down; below equilibrium, queues and shortages pull it up. The market clears not because anyone plans it, but because every mismatch creates pressure that removes itself. Every shock is just one curve shifting and a new intersection.

Exam tip

Movements ALONG a curve come only from the good's own price. Anything else (income, tastes, input costs, technology) SHIFTS a curve. Mixing these up is the most common first-year error.

Related models in Micro Foundations

Production Possibility Frontier →Absolute vs. Comparative Advantage →Price Elasticity of Demand & Supply →Consumer & Producer Surplus →