Demand, supply and market equilibrium

Demand is the quantity of a good that consumers are willing and able to buy at different prices during a stated period. Wanting an item without the ability to pay is not effective demand. The law of demand describes an inverse relationship between a good's own price and its quantity demanded, other relevant influences held constant. A demand schedule records the relationship; a demand curve represents it graphically.

A change in the good's own price causes a movement along an existing demand curve. A change in income, tastes, population, expectations or the price of a related good can shift the curve. For a normal good, higher income increases demand. An inferior good has a different income relationship, so do not assume that every good behaves in the same way. Substitutes can replace each other in use, while complements are used together.

Supply is the quantity producers are willing and able to offer for sale at different prices over a period. A higher own price usually encourages a larger quantity supplied, other things equal. Input costs, technology, taxes, subsidies, expectations and the number of sellers can change supply. A rise in production costs can reduce supply even when the product's selling price has not changed.

Market equilibrium occurs where quantity demanded equals quantity supplied. If the price is above equilibrium, a surplus means sellers offer more than buyers wish to purchase. If the price is below equilibrium, a shortage means buyers wish to purchase more than sellers offer. These descriptions compare quantities at a given price; they do not simply mean that a product feels expensive or difficult to find.

To analyse a market change, first identify the affected curve. State whether it shifts left or right, then compare the old and new intersection. An increase in demand with unchanged supply raises equilibrium price and quantity in the standard model. An increase in supply with unchanged demand lowers equilibrium price and raises quantity. When both curves shift, one outcome may be uncertain without information about the size of each change. Label axes and curves carefully rather than relying on memorised arrows.

Reading a market schedule accurately

A demand schedule describes how much buyers are willing and able to purchase at different prices during a stated period, holding other relevant influences constant. Willingness without purchasing ability is not effective demand in this model. A supply schedule describes quantities sellers are willing and able to offer at different prices over the same period. The quantities are flows, such as bags per week. Comparing buyers per month with sellers per day would produce a false equilibrium even if the arithmetic were correct.

Suppose weekly demand for a product is 90 units when price is ₦200, 70 units at ₦300 and 50 units at ₦400. Suppose supply is 30, 70 and 110 units at those prices. At ₦300 the two quantities are equal at 70 units, so there is no excess demand or supply in this schedule. At ₦200 buyers seek 60 more units than sellers offer. This shortage can create upward pressure on price when the market is allowed to adjust. At ₦400 sellers offer 60 more units than buyers demand, creating a surplus and downward pressure.

Movement along a curve versus a shift

A change in the product's own price causes a movement along its demand curve, under the other-things-equal assumption. It is called a change in quantity demanded. A change in household income, tastes, expectations, population or the price of a related good can shift the demand curve. That is a change in demand. A normal good tends to be demanded more as income rises; an inferior good tends to be demanded less over the relevant income range. Inferior describes this relationship, not a moral judgement or a guarantee of poor physical quality.

Substitutes can serve a similar purpose, while complements are consumed together. If tea and cocoa drinks are substitutes for a particular group, a rise in the price of tea may increase demand for cocoa drinks. If printers and compatible ink are complements, an increase in printer use can raise demand for ink. The relationship depends on actual use and the relevant market; two goods are not substitutes merely because their names appear in the same question. State the direction of the first change and follow the chain to the second market.

On the supply side, changes in input prices, technology, taxes, subsidies, weather or the number of sellers can shift the curve. A lower transport cost may enable sellers to supply more at each price. A change in the product's own price moves the market along an unchanged supply curve instead. When drawing a shift, keep the axes and units the same, label the original and new curves and show the old and new equilibria. A line moving right means a larger quantity at a given price, rather than a higher price at every point.

Predicting a new equilibrium

With supply unchanged, an increase in demand usually raises both equilibrium price and quantity in the standard upward-sloping supply model. With demand unchanged, an increase in supply usually lowers price and raises quantity. If demand and supply both rise, the quantity normally rises in this model but the price effect depends on the relative shifts. It is incorrect to give a definite price prediction without information about their sizes. Explain what can be concluded and what remains uncertain.

For a simple algebraic illustration, let quantity demanded be 100 − 2 P and quantity supplied be 20 + 2 P, with P measured in stated price units. Equating the two gives. Hence 80 = 4 P, P = 20 and quantity = 60. If demand becomes 120 − 2 P, equilibrium becomes P = 25 and quantity = 70. The calculation illustrates a demand shift; it is not an estimate of a real Nigerian market. Always check the solution in both equations and reject interpretations outside the meaningful range of the model.

Price controls and market outcomes

A binding price ceiling is set below the market-clearing price. At that controlled price, quantity demanded exceeds quantity supplied in the basic model. Allocation may then involve queues, rationing or other non-price mechanisms. A ceiling above equilibrium is not binding in that model. A binding minimum price is above equilibrium and can leave an excess supply. Whether a policy improves welfare depends on its wider design, enforcement, intended beneficiaries and alternatives. Identifying a shortage alone is not a complete evaluation of every possible public intervention.

Self-check: higher fertiliser costs affect the supply of vegetables. They shift supply left rather than move the market along an unchanged supply curve. Self-check: if the vegetable price itself rises while all supply conditions are fixed, quantity supplied changes along the curve. In written answers, draw the causal sequence explicitly: higher input costs, lower supply at each price, then a different equilibrium if demand is unchanged. This prevents the common error of naming a determinant without explaining its effect.