Demand, Supply & Market Equilibrium

• Demand is the willingness AND ability to buy at a given price — the law of demand says price and quantity demanded move in opposite directions.
• Movements along the demand/supply curve happen only when price changes — these are called extensions/contractions.
• Shifts of the entire curve happen when a non-price determinant changes (income, tastes, cost of production, etc.).
• Supply has a positive relationship with price — producers supply more as price rises to maximise profit.
• Market equilibrium is where demand = supply, at the "market clearing price."
• Disequilibrium happens when price sits away from equilibrium — creating excess demand (shortage) or excess supply (surplus).
• Markets are self-correcting: sellers adjust prices until the shortage or surplus disappears.
• Real-world shocks (pandemics, hurricanes, subsidies, inflation) shift demand or supply curves and create new equilibrium points.

What actually is "demand"?

Demand isn't just "wanting" something. If you'd love a Ferrari but can't afford one, that's not economic demand — it's just a wish. Economists only count demand when it's backed by the ability to pay. This is why the definition says demand is the amount a consumer is willing AND able to purchase at a given price, in a given time period.

Think of a demand curve as a "wish list ranked by price sensitivity" — it plots how the quantity people are willing and able to buy changes as price changes. Economists draw it as a straight line to make the analysis easier, even though real-world data would form a wobbly curve.

The Law of Demand

Movement ALONG the demand curve

This only happens when price is the only thing that changes. You stay on the exact same curve — you just slide to a different point on it.

• Contraction in QD = price rises → quantity demanded falls (movement UP the curve).
• Extension in QD = price falls → quantity demanded rises (movement DOWN the curve).