IBonomicsDemand and SupplySL
MicroeconomicsThe fundamental diagram showing the relationship between demand and supply in a competitive market, determining equilibrium price and quantity.
Curves and elements
- demand
- Demand Curve (D): Shows the inverse relationship between price and quantity demanded. Slopes downward from left to right.
- supply
- Supply Curve (S): Shows the positive relationship between price and quantity supplied. Slopes upward from left to right.
- equilibrium
- Equilibrium Point (E): The intersection of demand and supply curves where market clears.
Key explanations
- 1
The demand curve shows the relationship between price and quantity demanded, sloping downward due to the law of demand.
- 2
The supply curve shows the relationship between price and quantity supplied, sloping upward due to the law of supply.
- 3
Market equilibrium occurs where demand and supply curves intersect, determining the equilibrium market price and quantity.
- 4
Shifts in demand or supply curves lead to changes in equilibrium price and quantity.
Example exam question
Explain how an increase in consumer income would affect the market for normal goods, using a demand and supply diagram.
Show example answer
An increase in consumer income would increase the demand for normal goods, all things being equal
