Summary and Exam Tips for Demand, Supply and Market Equilibrium
Demand, Supply, and Market Equilibrium is a subtopic of The Market System, which falls under the subject Economics in the Edexcel IGCSE curriculum.
Demand refers to the willingness and ability of consumers to purchase goods or services at a given price. The demand curve illustrates the inverse relationship between price and quantity demanded, leading to a downward slope. Factors such as income, advertising, and the prices of substitutes and complements can shift the demand curve.
Supply is the willingness and ability of firms to provide goods and services at a given price. The supply curve shows a direct relationship between price and quantity supplied, resulting in an upward slope. Factors like production costs, technology, and taxes can cause shifts in the supply curve.
Market Equilibrium occurs when the quantity demanded equals the quantity supplied, determining the equilibrium price. Shifts in demand or supply can lead to excess demand or supply, causing price changes. Market forces work to eliminate these imbalances, restoring equilibrium.
Exam Tips
- Understand Key Concepts: Make sure you can define demand, supply, and market equilibrium. Use diagrams to illustrate how shifts in curves affect equilibrium.
- Diagram Practice: Practice drawing and interpreting demand and supply curves. Be able to show movements along curves and shifts due to non-price factors.
- Real-World Applications: Relate concepts to real-world scenarios, such as how advertising or a new tax can shift demand or supply.
- Terminology: Be clear on terms like "excess demand" and "excess supply" and how they relate to market disequilibrium.
- Problem-Solving: Practice calculating and explaining changes in equilibrium price and quantity when given shifts in demand or supply.
