Demand, supply and the £4 loaf
Introduced| English | Meaning |
|---|---|
| demand/dɪˈmænd/ | The quantity of a good or service that buyers are willing and able to purchase at different prices over a period. |
| quantity demanded/ˈkwɒntɪti dɪˈmændɪd/ | The amount buyers are willing and able to purchase at a particular price over a specified period. |
| supply/səˈplaɪ/ | The quantity sellers are willing and able to offer at different prices over a specified period. |
| quantity supplied/ˈkwɒntɪti səˈplaɪd/ | The amount sellers are willing and able to offer at a particular price over a specified period. |
| equilibrium/ˌiːkwɪˈlɪbrɪəm/ | A state in which opposing influences balance so there is no tendency for the relevant quantities to change. |
| comparative statics | comparing equilibrium before and after one change, holding everything else |
Where the £4 loaf comes from
- The city's artisan-bread market meets every morning: buyers with a plan for every price, bakers with a plan for every price.
- This lesson builds the two curves, finds the one price where the plans agree, and learns the shift-versus-slide discipline that the rest of the course runs on.
Demand is a relationship, not a number
- Daily demand 需求 for artisan loaves is $Q_d = 1200 - 100P$: at £3 buyers plan 900, at £4 they plan 800, at £5 they plan 700.
- A price change moves you along that list — it changes quantity demanded 需求量, never demand itself. Demand means the whole list.
A fall in the price of bread increases the demand for bread.
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It increases the QUANTITY demanded — a movement along the curve. Demand is the whole relationship and has not moved.
Supply is the same idea for bakers
- Daily supply 供给 is $Q_s = 400 + 100P$: at £3 bakers offer 700, at £4 exactly 800, at £5 they offer 900.
- Here too, the price changes quantity supplied 供给量 along the curve; the curve itself moves only when something else changes bakers' plans.
With $Q_d = 1200 - 100P$ and $Q_s = 400 + 100P$, what is the equilibrium price, in £?
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Setting the plans equal: $1200 - 100P = 400 + 100P$ gives $800 = 200P$, so $P^* = £4$ and $Q^* = 800$.
At a price of £2, how large is the shortage, in loaves?
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Buyers plan $1200-200 = 1000$; bakers offer $400+200 = 600$. The 400-loaf gap bids the price up.
At £6 the market shows a 400-loaf surplus. What does the surplus do?
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Unsold loaves compete the price down. Only at £4 is there neither a shortage nor a surplus to push anywhere.
One price survives
- Set the plans equal: $1200 - 100P = 400 + 100P$, so $P^* = £4$ and $Q^* = 800$. That crossing is equilibrium 均衡 — the only price with no built-in pressure.
- At £2 buyers want 1,000 and bakers offer 600: a 400-loaf shortage that bids the price up. At £6 the same 400-loaf surplus pushes it down. The gaps do the pushing.
Shift the curve or slide along it?
Each event either changes the loaf's own price (a movement along the curves) or shifts a whole curve. Sort the week's news correctly before predicting anything.
What shifts demand
- Incomes, tastes, the prices of other goods, expectations — anything on the buyer's side other than the loaf's own price.
- The festival raises city incomes and the whole demand list becomes $Q_d = 1400 - 100P$. Solve again: $P^* = £5$, $Q^* = 900$. Price AND quantity rose — the signature of a demand shift.
Festival incomes shift demand to Q = 1400 − 100P. What happens?
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A demand shift moves price and quantity in the same direction: $1400-100P = 400+100P$ gives £5 and 900 loaves.
What shifts supply
- Input prices, technology, the number of sellers — anything on the baker's side other than the loaf's own price.
- Cheaper flour turns supply into $Q_s = 600 + 100P$. New equilibrium: $P^* = £3$, $Q^* = 900$. Quantity rose again but the price FELL — the signature of a supply shift.
Cheaper flour shifts supply to Q = 600 + 100P. What happens?
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A supply shift moves them oppositely: $1200-100P = 600+100P$ gives £3 and 900. That signature is how you tell which curve moved.
Match each event to the curve it moves.
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Buyer-side changes shift demand, baker-side changes shift supply, and the good's own price never shifts either curve.
Two shocks at once
- Festival incomes AND cheap flour together: $1400 - 100P = 600 + 100P$ gives $P^* = £4$, $Q^* = 1000$.
- The price effects cancel and the quantities add — check any shock with one line of algebra before drawing anything. This one-line discipline is comparative statics 比较静态.
Both shocks hit together (demand 1400 − 100P, supply 600 + 100P). What is the new equilibrium quantity, in loaves?
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Price returns to £4 — the shifts cancel in price — and quantity lands at 1000: the quantity effects added.
Three market slips
- "Demand rose, so the curve shifted up" — and then sliding along it too. One event, one mechanism: either the curve moves or you move on it.
- Confusing quantity demanded with demand. A £1 price cut does not shift demand; it moves along it.
- Predicting quantity from one curve. Neither curve alone pins down price or quantity; the equilibrium needs both.
Recap
- Price changes slide along a curve; other changes shift it.
- Equilibrium solves $Q_d(P) = Q_s(P)$ — one line, always.
- Demand shift: price and quantity move together. Supply shift: they move opposite.