Ch.2 Summary
Theory of Demand and Supply
This interactive guide explores the foundational concepts of market economics. Use the sidebar to simulate market behaviors.
Demand
Desire backed by purchasing power and willingness to buy.
Supply
Quantities sellers are willing/able to provide at given prices.
Equilibrium
Point where Market Demand = Market Supply (\(Q_d = Q_s\)).
Law of Demand
Inverse relationship between Price and Quantity Demanded.
Law of Supply
Positive relationship between Price and Quantity Supplied.
Shortage
\(Q_d > Q_s\). Occurs when Price < Equilibrium.
Surplus
\(Q_s > Q_d\). Occurs when Price > Equilibrium.
Demand Explorer
Simulate movements and shifts.
1. Law of Demand (Movement)
Change price to see movement along the curve.
2. Demand Shifters (Shift of Curve)
Non-price factors shift the entire curve.
Base demand curve (D0).
3. Elasticity Calculator
\( E_d = \frac{Q_1 - Q_0}{Q_0 + Q_1} \div \frac{P_1 - P_0}{P_0 + P_1} \)
Supply Explorer
Theory of Supply Visualization.
1. Law of Supply (Movement)
Higher prices incentivize sellers to supply more.
2. Supply Shifters (Shift of Curve)
Base supply curve (S0).
Market Equilibrium Simulator
Where Demand meets Supply.
1. Finding Equilibrium
Example: \( Q_d = 100 - 2P \) and \( Q_s = 2P - 20 \).
Move the slider to create Surplus or Shortage.
2. Equilibrium Shifts
What happens to Price and Quantity when curves move?
Original Equilibrium (E0): P=30, Q=40
New Equilibrium (E1): P=30, Q=40
Select a shift to see impact.