Supply & demand
The single most useful model in economics: a downward-sloping demand curve meets an upward-sloping supply curve, and the intersection tells you the price and the quantity.
The demand curve
The law of demand: holding everything else equal, when the price of a good rises, buyers demand less of it. Plot quantity demanded on the x-axis and price on the y-axis, and you get a downward-sloping line.
The curve isn't a law of physics — it summarizes the trade-off buyers face. Demand shifts when something other than price changes: income, tastes, the price of related goods, expectations, or the number of buyers.
The supply curve
The law of supply: holding everything else equal, when the price rises, sellers supply more. Upward-sloping on the standard diagram.
Supply also shifts when non-price factors change: input costs, technology, taxes, the number of sellers, and expectations about future prices. A hurricane that knocks out oil refineries shifts gasoline supply left.
Equilibrium
The equilibrium is the price at which quantity supplied equals quantity demanded. At a higher price there's a surplus (Qs > Qd); at a lower price there's a shortage (Qd > Qs). The market clears at equilibrium.
When either curve shifts, the equilibrium moves. A rightward shift of demand (say, a new iPhone launch) raises both price and quantity. A rightward shift of supply (say, a tech-driven cost reduction) lowers price and raises quantity.
Flashcard · Unit 1
Higher price → lower quantity demanded (ceteris paribus).
Check your understanding
If demand for a product shifts rightward (with supply unchanged), what happens to the equilibrium price and quantity?