Supply & Demand

Where buyers and sellers meet: the price at which the quantity people want to buy equals the quantity offered. See who gains how much, and what happens when a hot summer, a new tax on fuel or a bad harvest shifts one of the curves.

EconomicsMarketsEquilibrium

Inputs

Input examples

Both curves are straight lines. Demand: Q_d = A − B·P (A is how much would be wanted at a price of 0, B how many fewer per unit of price). Supply: Q_s = C + D·P (C may be negative: nothing is offered below the price −C/D). A shift moves a whole curve sideways by a number of units at every price.

Currency

Demand A — quantity at price 0

Demand B — fewer units per € of price

Supply C — quantity at price 0 (often negative)

Supply D — more units per € of price

How a Market Finds Its Price

At a high price many sellers want to sell but few buyers want to buy: unsold stock piles up and sellers cut prices. At a low price it is the other way round and buyers outbid each other. The price settles where the two curves cross: the equilibrium.

Consumer surplus is what buyers would have been willing to pay above the price they actually pay; producer surplus is what sellers receive above the lowest price they would have accepted. Together they measure how much the market is worth to everyone involved.

demand upprice and quantity up

supply downprice up, quantity down

surplustriangles in the chart

steep curve= inelastic

Supply and Demand Curves

equilibrium

demand

supply

consumer surplus

producer surplus

dashed: before the shift

Result

Enter the values above

Which Way Things Move

one curve shifts, the other stays

What happens	Example	Price	Quantity
Demand rises	hot summer, ice cream	up	up
Demand falls	a cheaper substitute appears	down	down
Supply rises	better technology, good harvest	down	up
Supply falls	bad harvest, higher input costs	up	down

Worked Techniques

Finding the Equilibrium

Set demand equal to supply and solve for the price; fill it into either curve for the quantity.

Example: Q_d = 1000 − 20P, Q_s = −200 + 40P: P* = 20, Q* = 600.

Consumer Surplus

The triangle between the demand curve and the price. A/B is the price at which nobody buys any more.

Example:

Elasticity at the Equilibrium

On a straight line the elasticity changes along the curve, so it is given at the equilibrium point.

Example: E_d = −0.67, E_s = 1.33.

Sources & Verification

References

N. G. Mankiw, Principles of Economics, 9th ed., Cengage, 2021 — Ch. 4 (The Market Forces of Supply and Demand), Ch. 5 (Elasticity and Its Application) and Ch. 7 (Consumers, Producers, and the Efficiency of Markets).