Demand and Supply
FoundationCeteris paribus, a higher price cuts quantity demanded and raises quantity supplied. Non-price factors shift the whole curve; where quantity demanded equals quantity supplied the market is in equilibrium — excess demand pushes prices up, excess supply pulls them down.
- Law of demand: ceteris paribus, price and quantity demanded move oppositely; law of supply: they move together
- Own-price change = movement along the curve; non-price factors = shift of the whole curve
- A dearer substitute raises demand; a dearer complement lowers it
文體小知識：經濟現象說明文——講解需求定律與供應定律，以奶茶市場為例說明均衡價格的形成與調整。
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1Demand is the quantity consumers are willing and able to buy at each price, other things being equal. The law of demand states that when a good's price rises, quantity demanded falls; when it falls, quantity demanded rises. 'Other things being equal' is a vital assumption — without it we cannot attribute changes in quantity to price alone. A demand schedule lists price–quantity combinations; plotted, they form the demand curve sloping downward from top left to bottom right.
2A change in quantity demanded differs from a change in demand: a change in the good's own price moves us along a given demand curve, while changes in non-price factors shift the entire curve left or right. Factors affecting demand include the prices of substitutes and complements, income, tastes, price expectations and population. Goods whose demand rises with income are superior goods; those whose demand falls are inferior goods.
3Supply is the quantity producers are willing and able to sell at each price, other things being equal. The law of supply states that a higher price brings a larger quantity supplied. The good's own price changes quantity supplied — a movement along the supply curve — while production costs, technology, the number of sellers, weather and expectations shift the whole curve. Market demand and market supply are the horizontal sums of all individual demand and supply curves.
4Equilibrium means no tendency to change: when quantity demanded equals quantity supplied, neither price nor quantity has reason to move — the equilibrium price and quantity. Below equilibrium, excess demand appears and buyers bid the price up; above equilibrium, excess supply appears and sellers cut prices to clear stocks. The market price thus adjusts automatically toward equilibrium — the price system working as a signal for allocating resources.
1Summary 重點摘要
Ceteris paribus, a higher price cuts quantity demanded and raises quantity supplied. Non-price factors shift the whole curve; where quantity demanded equals quantity supplied the market is in equilibrium — excess demand pushes prices up, excess supply pulls them down.
2Vocabulary cards Vocabulary
The quantity consumers are willing and able to buy at each price, other things being equal.
Ceteris paribus, price and quantity demanded move in opposite directions: a higher price means less demanded.
The amount consumers are willing and able to buy at a given price, determined by the good's own price.
Non-price factors shifting the whole demand curve left (a decrease) or right (an increase).
Goods that can replace each other; a rise in a substitute's price raises demand for this good.
Goods used together; a rise in a complement's price lowers demand for this good.
The quantity producers are willing and able to sell at each price, other things being equal — the DSE term for 'supply'.
Changes in costs, technology and other non-price factors shifting the whole supply curve.
The state where quantity demanded equals quantity supplied, with no tendency for price or quantity to change.
The price at which quantity demanded equals quantity supplied; the corresponding trade volume is the equilibrium quantity.
3Step by step Steps
- Step 1: Demand and the law of demandDemand is the quantity consumers are willing and able to buy at each price, other things being equal; the law of demand says price and quantity demanded move oppositely. 'Other things being equal' is the key assumption. For example, the milk tea shop beside a secondary school sells 140 cups a day at $12; after raising the price to $18, sales fall to 80. Price up, quantity down — the law of demand. If the weather also changed, the fall in sales could no longer be attributed to the price rise alone.
- Step 2: Change in quantity demanded vs change in demandThey mean different things on a graph. A change in the good's own price causes a change in quantity demanded — a movement along one demand curve; non-price factors cause a change in demand — the whole curve shifts left or right. For example, milk tea falling from $16 to $14 raises sales: a downward movement along the curve. Winter arriving cuts sales at every price: the whole curve shifts left, a decrease in demand. In answers, keep 'movement along the curve' and 'shift of the curve' distinct.
- Step 3: Factors affecting demandNon-price factors include the prices of substitutes and complements, income, tastes, price expectations and population. A dearer substitute raises demand for this good; a dearer complement lowers it. For example, when bus fares rise some passengers switch to the MTR and demand for MTR rides increases — substitutes. Costlier petrol raises the cost of driving and lowers demand for cars — complements. Higher income boosts demand for overseas travel, a superior good.
- Step 4: Supply and the law of supplySupply is the quantity producers are willing and able to sell at each price, other things being equal; the law of supply says price and quantity supplied move together — the higher the price, the more offered. (Note: the DSE curriculum's formal term is 供應 'supply'; 供給 in this lesson's title is the everyday word for the same concept.) For example, at $10 a cup the shop owner will make only 60 cups a day, but at $16 as many as 150 — a higher price makes production more worthwhile.
- Step 5: Change in quantity supplied vs change in supplyA change in the good's own price changes quantity supplied — a movement along one supply curve; changes in costs, technology, the number of sellers or expectations shift the whole curve. For example, a higher milk tea price leads the owner to make a few more cups a day: an upward movement along the curve. A jump in mall rents raises costs and cuts quantity supplied at every price: the whole curve shifts left, a decrease in supply. Weather affecting farm output is another common factor.
- Step 6: Market demand and market supplyMarket demand is the horizontal sum of all consumers' individual demands: at each price, add up everyone's quantity demanded; market supply likewise adds quantities supplied across producers. For example, with only two drink shops in the market, at $14 shop A supplies 70 cups and shop B 50, so market supply is 120 cups. 'Horizontal sum' means adding quantities along the same price line — on a graph, adding the two curves side by side to form the market curve.
- Step 7: How equilibrium forms and adjustsEquilibrium means no tendency to change: quantity demanded equals quantity supplied, giving the equilibrium price and quantity. Below equilibrium, excess demand appears and frantic buying pushes the price up; above equilibrium, excess supply appears and sellers cut prices to clear stock. For example, at $12 demand is 140 cups but supply only 90 — a shortage of 50; the shop sells out early every day and raises the price. At $16 the reverse occurs, and the price settles back at $14, where the two sides match.
5Worked example Example
Data question: the market for bubble tea at a drink shop beside a secondary school. Data 1: after the price rises from $12 to $14, daily quantity demanded falls from 140 cups to 120. Data 2: the full market schedule — at prices $1012/1416/18, quantity demanded is 160140/120100/80 cups and quantity supplied is 6090/120150/180. Questions: (1) Does Data 1 show a change in quantity demanded or a change in demand? (2) Find the equilibrium price and quantity. (3) Mall rents rise, cutting quantity supplied by 50 cups at every price; find the new equilibrium and describe the adjustment.
- (1) Read the data: the good's own price changed, so this is a change in quantity demanded — a movement along the same demand curve, consistent with the law of demand; demand itself is unchanged
- (2) Find equilibrium: where quantity demanded equals quantity supplied — at $14, 120 cups = 120 cups, so the equilibrium price is $14 and the equilibrium quantity 120 cups
- (3) Build the new supply schedule: subtract 50 at each price, giving 1040/70100/130; at the old price of $14, quantity demanded is 120 but supply only 70 — excess demand of 50 cups
- Excess demand pushes the price up; buyers queue, the shop sells out earlier, so the owner raises the price
- New equilibrium: at $16, quantity demanded 100 = quantity supplied 100; the new equilibrium price is $16 and quantity 100 — lower supply means a higher price and a smaller trade volume
- Answer: (1) The good's own price changed, so Data 1 shows a change in quantity demanded: as the price rose from $12 to $14, quantity demanded moved along the same demand curve from 140 to 120 cups, as the law of demand predicts. (2) Quantity demanded equals quantity supplied at $14 (120 = 120): the equilibrium price is $14 and the equilibrium quantity 120 cups. (3) The rent rise cuts supply and shifts the whole supply curve left; at $14 there is excess demand of 50 cups, which pushes the price up until $16, where quantity demanded again equals quantity supplied (100 = 100). The new equilibrium price is $16 with quantity 100 — a decrease in supply raises the price and lowers the quantity traded.
6Common mistakes Mistakes
7Quick check Quick check
Q1What does the law of demand state?
Q2Winter arrives and hot-drink sales rise at every price. Is this a change in quantity demanded or a change in demand?
Q3Are petrol and cars substitutes or complements? How does dearer petrol affect the demand for cars?
Q4What is the definition of equilibrium?
Q5At some price, quantity demanded is 140 cups and quantity supplied 90. What does the market face, by how much, and what happens to the price?
8Recap Recap
- Law of demand: ceteris paribus, price and quantity demanded move oppositely; law of supply: they move together
- Own-price change = movement along the curve; non-price factors = shift of the whole curve
- A dearer substitute raises demand; a dearer complement lowers it
- Market demand and supply are the horizontal sums of individual curves
- Equilibrium = quantity demanded equals quantity supplied, no tendency to change; excess demand pushes prices up, excess supply pulls them down