Supply and Demand — Free Economics Review Games.
This unit covers demand curves, supply curves and market equilibrium — essential concepts for Economics. Use our interactive study games to test your understanding, or review questions in traditional format below.
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This unit covers demand curves, supply curves and market equilibrium — essential concepts for Economics. Use our interactive study games to test your understanding, or review questions in traditional format below.
Key Concepts Breakdown
1 Demand Curves
A demand curve shows the inverse relationship between price and quantity demanded, holding all other factors constant (ceteris paribus). Students must distinguish between a movement along the curve (caused by a price change) and a shift of the entire curve (caused by a non-price determinant). The five main demand shifters are: income, prices of related goods, tastes, expectations, and number of buyers.
Key Points
- Demand curves slope downward (left to right) due to the law of demand: as price rises, quantity demanded falls
- A change in price causes movement along the curve, not a shift
- Shifts right = demand increases; shifts left = demand decreases
- Substitute goods (e.g., Pepsi/Coke) and complement goods (e.g., hot dogs/buns) affect demand for related products
The price of coffee rises. At the same time, a study is released showing tea has major health benefits. What happens to the demand curve for tea?
The rise in coffee price makes tea relatively cheaper, so consumers substitute toward tea — this shifts the demand curve for tea to the right. The health study also increases consumer taste/preference for tea, shifting the curve further right. Both non-price factors shift the entire demand curve, not just a point on it.
2 Supply Curves
A supply curve shows the positive relationship between price and quantity supplied — as price rises, producers are willing to supply more. Like demand, students must distinguish between movement along the supply curve (price change) and a shift of the supply curve (non-price determinant). Key supply shifters are: input costs, technology, number of sellers, expectations, and government taxes or subsidies.
Key Points
- Supply curves slope upward (left to right) due to the law of supply: as price rises, quantity supplied increases
- A change in price causes movement along the curve only
- Shifts right = supply increases (more produced at every price); shifts left = supply decreases
- Higher input costs (wages, materials) reduce supply and shift the curve left
A new automated machine cuts the cost of producing smartphones in half. What happens to the supply curve for smartphones?
Improved technology reduces production costs, making it cheaper to produce each unit. Producers can now supply more smartphones at every price level, so the supply curve shifts to the right. This is a non-price determinant change, meaning the entire curve moves, not just a single point.
3 Market Equilibrium
Market equilibrium is the price at which quantity supplied equals quantity demanded — the market clears with no surplus or shortage. When either supply or demand shifts, the equilibrium price and quantity change in predictable ways. Students must be able to predict the direction of change in both equilibrium price and quantity after one or two curve shifts.
Key Points
- At equilibrium: Qs = Qd; above equilibrium price creates a surplus; below creates a shortage
- A rightward demand shift raises both equilibrium price and quantity
- A rightward supply shift lowers equilibrium price but raises equilibrium quantity
- When both curves shift, one variable (price or quantity) is indeterminate without knowing the size of each shift
The market for used cars experiences an increase in demand (more buyers) and a decrease in supply (fewer sellers). What happens to equilibrium price and quantity?
Increased demand pushes price up and quantity up; decreased supply pushes price up and quantity down. Both shifts agree that equilibrium price rises, so price definitely increases. However, the effects on quantity cancel out — quantity change is indeterminate without knowing which shift is larger.
Questions, answered.
What is Supply and Demand?
Supply and Demand is Unit 2 of Economics, covering demand curves, supply curves and market equilibrium.
How to study for Economics Unit 2?
Start with the Quick Summary above, review the Key Concepts, then test yourself with our interactive study games. Aim for 80%+ accuracy before moving on.
How many questions are in this unit?
This unit has 30+ review questions across 5 different game modes.