Demand and supply — common mistakes

When asked to analyse a change in a market, always start by identifying the initial equilibrium. Then, determine which curve shifts (demand or supply) and in which direction. Finally, describe the new equilibrium price and quantity, explaining the process of adjustment (e.g., the creation of a shortage or surplus at the original price).

Do not confuse increase in demand with increase in quantity demanded — the latter is caused only by a price fall.

This is a common misconception. A change in the product's own price causes a 'movement along' the existing demand curve, which is referred to as a change in 'quantity demanded'. A 'shift' in the demand curve, which is a change in 'demand', is only caused by a change in a non-price factor, such as consumer income, advertising, or the price of a substitute good.

No, the opposite is typically true. An increase in supply, represented by a rightward shift of the supply curve, means that more is available at every price level. Assuming demand remains constant, this creates a surplus (excess supply) at the original price. To sell the extra stock, firms are forced to lower the price, leading to a new, lower equilibrium price and a higher equilibrium quantity.

In A-Level Business and Economics, these terms have precise and different meanings. 'Demand' refers to the entire relationship between various prices and the quantities consumers are willing to buy, represented by the whole demand curve. 'Quantity demanded' refers to one specific amount that consumers will buy at one specific price, represented by a single point on the demand curve. A change in price changes the quantity demanded; a change in a non-price factor changes demand.