Key Idea: Put the two curves on one diagram and the market sorts itself out. Where they cross, buyers want exactly what sellers offer. Nothing is left over and nobody is queuing. Everything else in this topic is one of three moves: a price away from the crossing gets pushed back, a curve shifts and the crossing moves, or the two triangles either side of the price show who gains. Where you meet it:
Paper 1
- Essays.
- Explain [10]: one demand shifter and one supply shifter, each carried through to the new price.
Paper 2
- Data response.
- Sketch [2 or 3]: a drought or better market access, drawn on one diagram.
- Explain [4]: what a price change does to consumer surplus.
Every later diagram
- The same picture, then a change.
- Taxes, subsidies and price controls all start from this crossing and shade what is lost.
⚖️ Where the market clears
Equilibrium is the price where quantity demanded equals quantity supplied. The market clears: every buyer who will pay that price finds a seller, and every seller who will accept it finds a buyer.
| The price is… | What you see | What happens next |
|---|---|---|
| above equilibrium | a surplus: firms offer more than buyers want, stock piles up | firms cut the price to sell it, until the surplus is gone |
| below equilibrium | a shortage: buyers want more than is offered, queues form | buyers compete and bid the price up, until the shortage is gone |
| at equilibrium | nothing left over, nobody queuing | no reason for the price to move |
P and Q on the axes, D, S, the crossing E, and Pₑ and Qₑ written on the axes, not just at the dot. And say what pushes the price back: unsold stock, or buyers competing. The mechanism is the answer.
🔀 A curve shifts, the crossing moves
Every demand-and-supply question is the same three steps: which curve moves, which way, and what happens to price and quantity. Work it from the diagram rather than memorising the results.
| Shift | Price | Quantity | Example |
|---|---|---|---|
| Demand right | up | up | a health report praises oats |
| Demand left | down | down | incomes fall, for a normal good |
| Supply right | down | up | new machinery cuts costs |
| Supply left | up | down | a drought hits the harvest |
Demand moves price and quantity the same way. Supply moves them opposite ways. Told what happened to price and quantity? That pattern tells you which curve moved.
When both curves shift, one of price or quantity is certain and the other is not. Saying so is the right answer.
| Both shift | Certain | Depends on which shift is bigger |
|---|---|---|
| D right and S right | quantity rises | price |
| D left and S left | quantity falls | price |
| D right and S left | price rises | quantity |
| D left and S right | price falls | quantity |
😊 Who gains: the two triangles
Consumer surplus is the gap between what you would have paid and what you did pay. Producer surplus is the gap between what a seller got and the least they would have accepted. On the diagram they are the two triangles either side of the price, meeting at the equilibrium.
Consumer surplus: **Above** the price line, **below** demand, from 0 to Qₑ.. You would have paid £8, the price is £5: you are £3 better off.. Price **rises**: it shrinks. A higher price on every unit, and fewer units..
Producer surplus: **Below** the price line, **above** supply, from 0 to Qₑ.. A seller would have accepted £2, gets £5: £3 better off.. Price **rises**: it grows, as long as the seller can still sell the units..
Consumer plus producer surplus = community surplus, the total gain from the market. At the free-market equilibrium it is as big as it can be: allocative efficiency. When a tax or a price control moves the quantity away from Qₑ, part of it disappears. That lost triangle is the deadweight loss, and it runs through the rest of Unit 2.
✍️ Worked examples
The three shapes this topic is asked in, with new scenarios. Try each before opening the plan.
A late frost destroys a large share of a country's apple crop. Sketch a demand and supply diagram to show the effect on the price of apples.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Animated graph
Watch the graph build step by step in study mode.
Now the surplus question.
A drought raises the equilibrium price of rice. Using a diagram, explain the effect on consumer surplus.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
And the Paper 1 shape.
Using demand and supply diagrams, explain one demand-side change that could lower the price of cocoa and one supply-side change that could raise it.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
✅ Quick self-check
Tap each card to check yourself.
Define market equilibrium in one line. The price where quantity demanded equals quantity supplied. The market clears: no surplus, no shortage.
Shops have unsold stock piling up. Above or below equilibrium, and what happens? Above. That stock is a surplus. Firms cut the price to sell it, and the price falls back to equilibrium.
Queues at the till and empty shelves. Above or below? Below. That is a shortage. Buyers compete for what there is and bid the price up to equilibrium.
Demand shifts left. What happens to price and quantity? Both fall. Demand moves price and quantity the same way.
Supply shifts right. What happens to price and quantity? Price falls, quantity rises. Supply moves them opposite ways.
Both curves shift right. What can you say for certain? Quantity rises. Price depends on which shift is bigger, and saying so is the right answer.
You would have paid £12 for a ticket and paid £9. Consumer surplus, and where is it? £3. On the diagram it is part of the triangle above the price line and below demand.
What is deadweight loss? Community surplus that disappears when the quantity traded moves away from the equilibrium quantity. The lost triangle on a tax or price-control diagram.
Exam tips
- Seven labels on every diagram: P, Q, D, S, E, and Pₑ and Qₑ on the axes.
- Say what pushes the price back: unsold stock in a surplus, buyers competing in a shortage.
- Shift one curve unless the question gives you two causes. Draw the original equilibrium first, then the shift.
- Demand: price and quantity move the same way. Supply: opposite ways. Read the pattern backwards to find the curve.
- Both curves move? One of price or quantity is indeterminate. Say which, and why.
- Shade surplus areas rather than describing them. The shading is the evidence.
- A minimum price sits above equilibrium, a maximum price below. Drawn the wrong way round, the diagram answers a different question.