A BEGINNER’S GUIDE TO DEMAND AND SUPPLY

Dr. Gary Stone, Winthrop University

DEMAND

The demand curve is downward-sloping because as the price of a good rises, consumers will buy less of it.

If the price of a good changes, move along the existing demand curve. Do not shift the demand curve. This is called a “change in quantity demanded.”

If anything other than the price of the good changes, shift the demand curve for the good. This is called a “change in demand.” Shift the demand curve to the right (left) to show an increase (decrease) in demand.

SUPPLY

The supply curve is upward-sloping because as the price of a good rises, producers

will make more of it.

If the price of a good changes, move along the existing supply curve. Do not shift the supply curve. This is called a “change in quantity supplied.”

If anything other than the price of the good changes, shift the supply curve for the good. This is called a “change in supply.” Shift the supply curve to the right (left) to show an increase (decrease) in supply.

EQUILIBRIUM

The “equilibrium price” is the price at which the demand and supply curves intersect.

Only at this one price will the quantity demanded be equal to the quantity supplied. The quantity at this price is called the “equilibrium quantity.”

At any price above the equilibrium price, there is a surplus of the good because the quantity supplied is greater than the quantity demanded.

At any price below the equilibrium price, there is a shortage of the good because the quantity demanded is greater than the quantity supplied.