ACC 818 — Module 2: Demand, Supply, and Price
The supply-and-demand model — the foundational framework of microeconomics. Critical distinction in this module: movement along a curve vs. shift of a curve.
Learning Outcomes
- Distinguish change in quantity demanded (movement along) from a change in demand (shift of curve)
- Same distinction for supply
- Show how demand and supply interact to determine price
- Determine equilibrium price and quantity from changes in demand or supply
Topic 1: Reading the Diagram
- Y-axis (price), X-axis (quantity), origin at bottom-left.
- Positive relationship → upward-sloping line. Negative → downward-sloping.
Topic 2: Supply and Demand
- Law of demand — when price falls, quantity demanded rises (downward-sloping demand curve).
- Law of supply — when price falls, quantity supplied falls (upward-sloping supply curve).
- Equilibrium — the intersection point. Solve algebraically by setting Qd = Qs.
- Worked example: Xd = 100 − 2P; Xs = −40 + 5P → P = 20, Q = 60.
Topic 3: Movement vs. Shift
- A change in price of the good itself → movement along the curve (change in quantity demanded/supplied).
- A change in any other determinant → shift of the entire curve (change in demand/supply).
Demand shifters
Consumer income, prices of related goods (substitutes/complements), preferences, expectations, number of buyers.
Supply shifters
Input costs, technology, expectations, number of producers.
COVID-19 illustration
The pandemic generated both demand-side shocks (collapse in travel demand) and supply-side shocks (broken supply chains). A useful test of whether you can correctly classify a shock as demand or supply.
Caveat
The demand-and-supply model is foundational, but it doesn’t apply to all markets — needed assumptions (many buyers/sellers, homogeneous goods, no significant market power) don’t always hold. Imperfect-competition models pick up where this leaves off (Module 6).
Key Terms
Demand · Supply · Equilibrium · Quantity Demanded · Quantity Supplied · Movement vs. Shift · Substitutes · Complements