Exploring Demand and Supply in GCSE Economics

Demand and Supply in GCSE Economics

The concepts of demand and supply are fundamental to understanding how markets function in economics. This topic explores their interaction and how it determines the equilibrium price and quantity in a market.

The Law of Demand

The law of demand states that there is an inverse relationship between the price of a good or service and the quantity demanded. As the price increases, the quantity demanded decreases, and vice versa. This relationship is depicted by the demand curve on a graph.

The Law of Supply

The law of supply states that there is a direct relationship between the price of a good or service and the quantity supplied. As the price increases, producers are willing to supply more of the good, and as the price decreases, they supply less. This relationship is shown by the supply curve.

Shifts in Demand and Supply

While the demand and supply curves show the relationship between price and quantity, they can also shift due to various factors:

Demand Shifts:

• Changes in consumer income
• Changes in the prices of related goods (substitutes or complements)
• Changes in consumer preferences or tastes
• Changes in the number of consumers

Supply Shifts:

• Changes in input costs (e.g., raw materials, labor)
• Changes in technology
• Changes in taxes or subsidies
• Changes in the number of producers

Market Equilibrium

The market equilibrium is the point where the demand and supply curves intersect, determining the equilibrium price and quantity. At this point, the quantity demanded equals the quantity supplied. If there is a surplus or shortage in the market, prices will adjust until equilibrium is reached.

Worked Example

Problem: Suppose the demand for oranges increases due to a rise in consumer preference for vitamin C. Illustrate the shift in the demand curve and explain how the equilibrium price and quantity change.

Solution:

1. The rise in consumer preference for vitamin C will increase the demand for oranges at every price level.
2. This shift in demand will be represented by a rightward shift of the entire demand curve.
3. With the supply curve remaining unchanged, the new equilibrium point will be where the shifted demand curve intersects the supply curve.
4. The new equilibrium price will be higher, and the new equilibrium quantity will be greater than before the demand shift.

By understanding the principles of demand and supply, students can analyze how changes in market conditions affect prices, quantities, and ultimately, the allocation of resources.