Question 1

What is the difference between a change in demand and a change in quantity demanded?

Accepted Answer

A change in quantity demanded is a movement along the demand curve caused only by a change in the good's own price. For example, if the price of apples falls, you buy more apples – that's a movement. A change in demand is a shift of the entire curve caused by factors other than price, such as a rise in income, a change in tastes, or the price of related goods. For instance, if a new study shows apples are healthy, demand increases at every price – the curve shifts right.

Question 2

How do you find the equilibrium price and quantity on a graph?

Accepted Answer

Equilibrium is where the demand and supply curves intersect. Draw both curves on the same axes (price on the vertical axis, quantity on the horizontal). The point where they cross gives the equilibrium price (read off the vertical axis) and equilibrium quantity (read off the horizontal axis). At this price, the amount consumers want to buy exactly equals the amount producers want to sell – no shortage or surplus.

Question 3

What happens to equilibrium price and quantity when demand increases?

Accepted Answer

When demand increases (shifts right), at the original price there is excess demand (shortage). This pushes the price up. As price rises, quantity supplied increases (movement along supply curve) until a new equilibrium is reached at a higher price and higher quantity. So, an increase in demand leads to a higher equilibrium price and a higher equilibrium quantity (ceteris paribus).

Question 4

Why do we use 'ceteris paribus' in economics?

Accepted Answer

Ceteris paribus means 'all other things being equal'. It allows economists to isolate the effect of one variable on another. For example, when stating the law of demand – 'as price falls, quantity demanded rises' – we assume that income, tastes, and other factors remain constant. Without this assumption, we couldn't be sure that the change in quantity demanded was due to price alone. It's a simplifying assumption that makes analysis possible.

Question 5

Can a market have more than one equilibrium?

Accepted Answer

In a standard demand-supply model, there is only one equilibrium where the curves intersect. However, if the curves are not linear (e.g., backward-bending supply curve for labour), there could be multiple intersections. In GCSE Economics, you only deal with linear or simple curves, so there is always a single equilibrium. Also, if the market is disrupted (e.g., by a price ceiling), the market may not reach equilibrium, but the theoretical equilibrium is still unique.

Question 6

What is the difference between a surplus and a shortage?

Accepted Answer

A surplus occurs when the price is above equilibrium – quantity supplied exceeds quantity demanded. Producers are left with unsold goods, so they tend to lower prices. A shortage occurs when the price is below equilibrium – quantity demanded exceeds quantity supplied. Consumers cannot buy enough, so they bid up prices. Both are temporary; the market moves back to equilibrium as prices adjust.

Demand, supply and market equilibrium

Topic Overview

Key Concepts

Examiner Tips

Common Mistakes

Frequently Asked Questions

Before You Start

Key Terminology

Ready to test yourself?

Related Topics in EDEXCEL GCSE Economics

Business competition

Business costs, revenues and profit

Business economics

Economic assumptions

Topic Synopsis

Key Concepts & Core Principles