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Prof. Muhebullah Karimzada · UNBC Economics
ECON 101 · Markets

Supply &
Demand

How prices are determined, why markets clear, and how millions of decisions are coordinated without a central plan.

Prof. Muhebullah Karimzada · UNBC Economics

D S E
The Big Picture

Markets coordinate millions
of decisions through prices.

🛒

Buyers & Demand

Buyers want goods at the lowest possible price. Their collective willingness and ability to pay determines the demand side of every market.

🏭

Sellers & Supply

Sellers want to receive the highest possible price. Their willingness and ability to produce determines the supply side of every market.

💰

Price as Signal

Prices encode information about scarcity and value. They coordinate buyers and sellers without any central authority directing either side.

The Demand Curve

How much consumers are willing and able to buy at each price — all else equal.

Law When price rises, quantity demanded falls. The demand curve always slopes downward.
Why Substitution effect: higher price makes this good relatively expensive vs. alternatives.
Why Income effect: higher price reduces purchasing power, so less is bought.
Key Moving along the curve = price change. A shift of the curve = something else changed.
D A Quantity → Price → P↑ → Q↓

The Supply Curve

How much producers are willing and able to sell at each price — all else equal.

Law When price rises, quantity supplied rises. The supply curve always slopes upward.
Why Higher prices → higher profit for each unit sold, attracting more producers and more production.
Why Lower prices → lower margins. Some producers exit; others cut output. Quantity falls.
Key Moving along the curve = price change. A shift = production costs, technology, or number of firms changed.
S B Quantity → Price → P↑ → Q↑

Market Equilibrium

The price at which quantity demanded equals quantity supplied — where the two curves cross.

Surplus (above P*): producers made more than buyers want — prices fall until market clears.

Shortage (below P*): buyers want more than producers made — prices rise until market clears.

At P*: no pressure on price to move. The market self-corrects to this point.

SURPLUS ↓ SHORTAGE ↑ D S P* Q* E Quantity → Price →
Movements vs. Shifts

What Moves the Curves?

↙ Demand Shifts

💵Income: rise in income increases demand for normal goods; decreases it for inferior goods.
🔄Related goods: substitute prices rise → demand rises; complement prices rise → demand falls.
📣Preferences & expectations: tastes shift, or expectations of future prices change buying behaviour today.

↗ Supply Shifts

⚙️Input costs: cheaper labour or materials shift supply right; costlier inputs shift it left.
🤖Technology: improvements let producers make more with the same inputs — supply shifts right.
🏢Number of firms: more producers → more supply; firms leaving → less supply.
Critical distinction: A price change causes movement along a curve. Everything else causes the curve itself to shift.
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Every price you pay, every shortage you encounter, every surplus on a sale rack — that is supply and demand at work, coordinating without a conductor.
— Prof. Muhebullah Karimzada · ECON 101 · UNBC
Supply · Demand · Equilibrium · Markets

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