ECB1101 · Introductory Microeconomics
Supply and Demand
Demand and supply is the engine the rest of ECB1101 runs on. A market settles at the price where quantity demanded equals quantity supplied; above that price a surplus pushes price down, below it a shortage pushes price up. The single most-tested distinction is movement along a curve (caused only by the good's own price) versus a shift of the whole curve (caused by any other shifter — income, related prices, tastes, expectations, the number of buyers or sellers, input prices, technology). From there the four comparative-static cases follow: a demand shift moves P* and Q* the same way; a supply shift moves them in opposite ways; and if both curves shift at once, one outcome is ambiguous. When demand and supply are given as linear equations, equilibrium is pure algebra: set Qd = Qs, solve for P*, substitute back for Q*.
What this chapter covers
- 013.1 The demand curve & its shifters
- 023.2 The supply curve & its shifters
- 03Movement ALONG vs SHIFT of a curve
- 043.3 Market equilibrium · shortage & surplus
- 053.4 Comparative statics — the four shift cases
- 06The 'both curves shift' ambiguous case
- 07Solving linear demand & supply algebraically
Worked example: equilibrium from linear demand & supply
- +2(a) Set Qd = Qs: 120 − 4P = 6P. Collect: 120 = 10P, so P* = $12.
- +1(a) Substitute back: Q* = 6P* = 6 × 12 = 72.
- +1(b) Verify with the other curve: Qd = 120 − 4×12 = 72 ✓ — both curves give the same Q, so the answer checks.
- +1(c) Supply shifts right: equilibrium price falls and quantity rises (a supply shift moves P* and Q* in opposite directions).
Key terms
- Law of demand
- Holding all else equal, as a good's price rises the quantity demanded falls, so the demand curve slopes downward. Each point also reads as the most a buyer will pay for that unit — their marginal value.
- Demand shifter
- Anything other than the good's own price that moves the whole demand curve: income (normal vs inferior good), prices of related goods (substitutes & complements), tastes, expectations, and the number of buyers. A change in the own price is instead a movement along the curve.
- Movement along vs shift
- A change in the good's own price is a movement along the curve (a change in quantity demanded/supplied); a change in any shifter is a shift of the whole curve (a change in demand/supply). True/false questions live entirely on this distinction.
- Market equilibrium
- The single price P* at which quantity demanded equals quantity supplied, with matching quantity Q*; the market clears and there is no pressure to change. Above P* a surplus bids price down; below P* a shortage bids it up.
- Comparative statics
- Shifting one curve and reading off the new crossing. A demand shift moves P* and Q* the same way (both up or both down); a supply shift moves them in opposite ways. If both curves shift, one of P* or Q* is ambiguous and depends on which shift dominates.
Supply and Demand FAQ
What's the difference between a shift of demand and a movement along it?
A change in the good's own price moves you along a fixed demand curve — that's a change in the quantity demanded. A change in anything else (income, the price of a substitute or complement, tastes, expectations, the number of buyers) shifts the whole curve — that's a change in demand. Almost every true/false trap in this week turns on this: 'a rise in the price of coffee increases the demand for coffee' is false (it's a movement along), while 'a rise in the price of tea increases the demand for coffee' is true (a substitute's price is a shifter).
When supply or demand shifts, which way do price and quantity move?
Memorise two lines. A demand shift moves P* and Q* the SAME way: demand up means both rise, demand down means both fall. A supply shift moves them in OPPOSITE ways: supply up (right) means price falls and quantity rises, supply down (left) means price rises and quantity falls. Commit those to memory and most comparative-static multiple-choice questions answer themselves.
What happens if both curves shift at the same time?
Then only one of price or quantity is pinned down; the other is ambiguous and depends on the relative size of the two shifts. For example, if a substitute enters (demand left) and an input gets cheaper (supply right), price clearly falls but quantity could go either way. The mark-earning answer states which variable is determined, then says the other is 'ambiguous — it depends on which shift dominates,' with a one-line reason.
How do I solve linear demand and supply, and what's the common slip?
Set the two QUANTITIES equal — never the prices — because demand and supply share the same market price, so it is Qd = Qs that pins down P*. Solve for P*, then substitute back into either curve for Q*, and check by substituting into the OTHER curve. One more slip to avoid: even though we write Q as a function of P, economists draw P on the vertical axis, so do the algebra in whatever form is given and map to the graph afterwards.
Exam move
Build the equilibrium-first habit: whatever policy comes later (tax, subsidy, floor, ceiling), the first marks are always the free-market equilibrium — set Qd = Qs, get (P*, Q*), and draw a clean, fully-labelled diagram (both axes, both curves, the crossing point). Drill the movement-vs-shift distinction until it is automatic, then memorise the two comparative-static lines (demand shifts move P* and Q* the same way; supply shifts move them opposite). For the algebra, set quantities equal, solve, substitute back, and always verify on the other curve — that check is free marks.
