📐Module 2 · Level 2
Supply & Demand
The most fundamental concept in economics — how prices are determined by the interaction of buyers and sellers.
The Laws of Supply and Demand
Law of Demand: when price goes up, quantity demanded goes down (and vice versa). Law of Supply: when price goes up, quantity supplied goes up. These two curves intersect at the equilibrium price.
Market Equilibrium
At equilibrium, there's no surplus and no shortage. If mangoes are priced too high, sellers have excess stock (surplus) — they lower prices. If priced too low, there's a shortage — sellers raise prices. Markets naturally tend toward equilibrium.
- •Demand curves slope downward; supply curves slope upward
- •Equilibrium is where supply meets demand — no surplus, no shortage
- •Shifts in supply or demand change the equilibrium price
- •Price controls (ceilings and floors) can cause shortages or surpluses
💡 Did You Know?
During COVID-19, hand sanitizer prices spiked by 400% in some markets — a textbook example of demand shifting right while supply couldn't keep up.