Economics: supply, demand, and markets (grade 12) · lesson

Demand

💡 Buyers want less as price rises, and other changes like income or a substitute's price shift the whole demand curve.

The law of demand says that when a good's price rises, buyers want less of it, all else the same. A change in the good's own price is a movement along the demand curve.

Other changes shift the whole curve. If a substitute gets pricier, demand for the good rises: when coffee costs more, people switch to tea. If incomes rise, people buy more of most goods. If a related cost like gas rises, demand for a replacement like e-bikes rises.

🧠 Let's work it out

First ask: did the good's own price change, or something else?
Own price means move along the curve.
Something else about buyers means the curve shifts.
More wanted at every price means a shift to the right.

What do you think comes next?

law of demand: higher price, lower quantity demanded
substitute: a good that can replace another
complement: a good used together with another

🔗 Khan Academy: Supply, demand, and market equilibrium · Khan Academy (free) ↗

Supply

💡 Sellers offer more as price rises, and changes in their costs or harvests shift the whole supply curve.

The law of supply says that when price rises, sellers offer more, because selling becomes more worthwhile. A change in the good's own price is a movement along the supply curve.

Things that make producing harder or costlier shift supply to the left: a frost, a drought, or a jump in fertilizer prices. Less supply pushes the price up and the quantity sold down. Better technology or cheaper inputs shift supply to the right.

🧠 Let's work it out

Ask whether the change hits sellers or buyers.
A frost changes how many oranges exist, so it hits supply.
Bread getting popular changes what buyers want, so it hits demand, not wheat supply.

What do you think comes next?

law of supply: higher price, higher quantity supplied
input: something used to make a product

Equilibrium, shortages, and surpluses

💡 The market settles where the amount wanted equals the amount offered, and prices set above or below that point cause surpluses or shortages.

Equilibrium is the price where quantity demanded equals quantity supplied. If buyers want 100 and sellers offer 100 at $4, the equilibrium price is $4.

If the price is above equilibrium, sellers offer more than buyers want, and the extra is a surplus. Sellers usually cut prices to clear it. If the price is below equilibrium, buyers want more than is offered, and there is a shortage.

When demand suddenly jumps, a shortage appears at the old price and stores sell out. Sellers raise the price, and the market settles at a new, higher price. A price ceiling, like a rent cap set below the market price, keeps the price low, so a shortage lasts.

🧠 Let's work it out

Compare the two quantities at the given price.
Supplied minus demanded, if positive, is the surplus.
Demanded minus supplied, if positive, is the shortage.
Then predict the price moves to close the gap, unless a law blocks it.

What do you think comes next?

equilibrium: the price where quantity demanded equals quantity supplied
surplus: more offered than wanted
shortage: more wanted than offered
price ceiling: a legal maximum price

Elasticity and externalities

💡 Some buyers barely react to price, and some costs fall on people outside the deal, so markets can make too much of a harmful good.

Elasticity measures how much buyers react to a price change. If gas prices rise 20% but drivers buy only 3% less, demand is inelastic: people need gas and can't easily switch. If a small price change causes a big drop, demand is elastic.

An externality is a cost or benefit that falls on people outside a deal. A factory's smoke harms neighbors who neither buy from nor sell to it. If the factory doesn't pay for that harm, its costs look lower than they really are, so it produces more than is best for society. This is a negative externality.

🧠 Let's work it out

For elasticity, compare the sizes: a big price change with a small quantity change means inelastic.
For externalities, ask who pays the cost.
If part of the cost is pushed onto others, the maker does more of the activity than it would if it paid the full cost.

What do you think comes next?

elasticity: how strongly quantity responds to a price change
inelastic: barely responsive to price
externality: a cost or benefit that falls on people outside a deal