Supply, Demand, and Market Equilibrium

Overview

This is a self-contained, no-technology substitute packet in which high-school students investigate how a free market sets a price. Working alone with a pencil (a calculator is allowed but not required), students read a short original reference on the law of demand, the law of supply, equilibrium, and shortage vs. surplus; read the equilibrium price and quantity off a supply-and-demand graph and off a price schedule; identify shortages and surpluses at given prices; predict how a demand increase (a rightward shift) changes equilibrium price and quantity; sort fact from opinion; evaluate a claim; and write an evidence-based prediction (Claim–Evidence– Reasoning) about what happens to price when demand rises. The packet supports a ~50-minute standard version and a ~90-minute block version (the block adds a supply-shift scenario and extended writing). Content uses standard, widely taught economics.

Accessible version of the student activity

The full student activity is reproduced below in plain, screen-reader-friendly HTML. It reflows on phones and at 200% zoom. Write your answers on the printed packet. Items marked [BLOCK] are for the ~90-minute version only.

Start (5 minutes) — Warm up

1. Think of one thing you buy. If its price went up a lot, would you probably buy more of it or less? Circle one and give one reason. (Intended: less — the law of demand.)
2. Now think like a seller. If you could sell your product for a much higher price, would you offer more of it or less? Circle one and give one reason. (Intended: more — the law of supply.)

Build (10–15 minutes) — Read the reference

Reference — How markets set a price (written for this packet)

The law of demand: all else equal, when the price goes up the quantity buyers want (quantity demanded) goes down, and when the price goes down the quantity demanded goes up. That is why a demand line slopes downward on a price-vs-quantity graph. The law of supply: all else equal, when the price goes up the quantity sellers offer (quantity supplied) goes up, and when the price goes down the quantity supplied goes down. That is why a supply line slopes upward. Equilibrium is the one price where the two lines cross — the amount buyers want to buy exactly equals the amount sellers want to sell — giving the equilibrium price and equilibrium quantity; left alone, a market tends to settle here. Shortage vs. surplus: if the price is set below equilibrium, buyers want more than sellers offer, so there is a shortage and price tends to rise; if the price is set above equilibrium, sellers offer more than buyers want, so there is a surplus and price tends to fall. Shifts: a change in something other than the good's own price (income, tastes, number of buyers, or sellers' costs) can shift a whole line. If demand increases, the demand line moves to the right, and the new crossing point has a higher equilibrium price and a higher equilibrium quantity. Moving the whole line is a shift; sliding to a new point on the same line because that good's price changed is only a movement along the line — the two are not the same. (Type: original explanatory summary using standard economics.)

Word bank

supply

how much of a good sellers are willing and able to offer at each price.

demand

how much of a good buyers are willing and able to buy at each price.

equilibrium

the price where quantity demanded equals quantity supplied; where the two lines cross.

shortage

when quantity demanded is greater than quantity supplied (price below equilibrium).

surplus

when quantity supplied is greater than quantity demanded (price above equilibrium).

price

the amount of money exchanged for one unit of a good or service.

3. Which line slopes downward and which slopes upward? (Downward = demand; upward = supply.)

Apply (20–25 minutes) — Read the market

Table 1 — price schedule for one good (original, illustrative). At each price, read across to compare how much buyers want (quantity demanded) with how much sellers offer (quantity supplied), then decide whether there is a shortage or a surplus.

4. Read the equilibrium off the graph: give the equilibrium price and equilibrium quantity. (Where the lines cross: $6 and 60 units.)
5. Read the equilibrium off the table: find the row where quantity demanded equals quantity supplied ($6, 60), and explain in one sentence how you knew it was the equilibrium row.
6. Fill in the last column of Table 1 for the $2, $4, $8, and $10 rows. Then: at a price of $4, is there a shortage or a surplus, and how many units is the gap? (A shortage of 40 units.)
7. Predict a shift: if the good becomes very popular so demand increases (the whole demand line moves right), what happens to the equilibrium price and quantity? Circle rises / falls / stays the same for each, and explain why. (Both rise.)
8. Fact (F) or opinion (O)? Mark each:
   • a) At a price of $6, quantity demanded equals quantity supplied.
   • b) At $2 there is a shortage because buyers want 100 but sellers offer only 20.
   • c) $6 is a fair and reasonable price that everyone should be happy with.
   • d) This product is the best thing anyone could ever spend money on.
9. Evaluate a claim: a store owner claims "Raising my price always brings in more total money." Choose: (A) Yes, always; (B) Not always — when price rises the quantity buyers actually buy falls, so raising price above equilibrium can leave unsold surplus and does not guarantee more money; (C) The schedule says nothing about it. Then explain your choice with a detail from Table 1 (e.g., compare the $6 and $10 rows).
10. Movement vs. shift: a classmate says "the price of the good went up, so the whole demand line shifted." Explain the difference between moving along a line (the good's own price changed) and a shift of the whole line (something else changed).

Explain (10–20 minutes) — Claim, Evidence, Reasoning

Question 11. When demand for this good rises (more buyers want it at every price), what happens to the equilibrium price? Write a claim, support it with evidence from the graph and the table, then explain your reasoning using the laws of supply and demand and equilibrium. Sentence stems: "When demand rises, the equilibrium price will ______."; "Evidence from the graph is…"; "Evidence from the table is…"; "This happens because at the old price there is now a ______, which pushes the price ______ until the market reaches a new equilibrium."

[BLOCK] Extended writing: explain step by step — at the old equilibrium price, is there now a temporary shortage or surplus? How does that gap push the price to the new equilibrium, and what happens to the equilibrium quantity?

Extend (10 minutes) — Supply-shift scenario [BLOCK]

Question 12. Suppose a new machine makes the good cheaper to produce, so supply increases (the whole supply line moves right); demand does not change. Circle rises / falls / stays the same for equilibrium price and for equilibrium quantity, and explain why using shortage or surplus. (Intended: price falls, quantity rises — a temporary surplus at the old price pushes the price down.)

Close (5 minutes) — ACE

• Articulate: explain in your own words what equilibrium is.
• Connect: point to one row in Table 1 that shows a shortage and one that shows a surplus; name the price in each case.
• Extend: name one real product whose price you have seen change, and give one supply or demand reason for the change.

Continue (optional, ~15 minutes) — Early finisher

Draw and label your own supply-and-demand graph with an equilibrium point, then add a new demand line to the right (a demand increase) and mark the new equilibrium; label whether price and quantity went up or down and write one sentence explaining why.

Turn in

Hand in the whole packet with your name, class period, and date, with questions 1–11 and the ACE box answered (skip the [BLOCK] items — Question 12 and the block add-on in Question 11 — if you did the standard version). Include the optional early-finisher task if you did it.