Microeconomics

Every market you have ever used — coffee shops, ticket resales, the second-hand textbook trade — answers the same two questions: what gets produced, and who gets it. Demand, supply and equilibrium are the machinery behind that answer, and they are the foundation for everything else you will meet in microeconomics. This page teaches the model properly; it is also the place to start if you are looking for a microeconomics tutor who works at university level.

1 · Demand is a ranked queue of buyers

Forget the curve for a moment. A demand curve is really a queue of buyers, sorted from the one willing to pay the most down to the one barely willing to pay at all. At any price P, the quantity demanded Q_d counts everyone in the queue whose willingness to pay is at least P. Lower the price and more of the queue is included. That is the law of demand, and it is why the curve slopes downward.

Two forces sit underneath it. First, substitution: when the price of a flat white rises, some drinkers switch to filter coffee or tea. Second, income: a higher price leaves your budget covering less than before, so you cut back somewhere. You will meet these again formally as the substitution and income effects in intermediate micro. For now, the queue intuition is enough.

One condition does real work here: everything else is held constant. The curve tells you how Q_d responds to P alone — incomes, tastes, and the prices of other goods are frozen in the background. When the price changes and nothing else does, you move along the curve. Nothing shifts. Hold that thought; Section 4 is where most exam marks are lost.

2 · Supply is marginal cost made visible

Now run the same trick on sellers. Rank every unit that could be produced by what it costs to produce it, cheapest first. At any price P, sellers bring to market every unit whose cost of production is below P — supplying a unit that costs more than it sells for is a donation, not a business. Raise the price and more units clear the bar. Quantity supplied Q_s rises with P, and the supply curve slopes upward.

So the supply curve is just the market’s marginal cost schedule, read left to right. The height of the curve at any quantity tells you what the last unit cost to produce. This reading pays off later — producer surplus, tax incidence and welfare analysis all lean on it — so build the habit now: demand measures willingness to pay, supply measures cost of production.

As with demand, the curve holds the background fixed: input prices, technology and the number of sellers all sit frozen behind it. Change any of them and you are no longer moving along the curve.

3 · Equilibrium is the only price with no pressure on it

Put the two curves in the same picture and ask: at which price are buyers’ plans and sellers’ plans consistent with each other?

Try a price that is too high. Sellers offer a lot; buyers take little. The gap is excess supply — unsold stock piling up — and unsold stock pushes sellers to cut prices. Try a price that is too low. Buyers want more than sellers offer. The gap is excess demand — queues, stockouts, waiting lists — and frustrated buyers bidding for scarce units push the price up.

There is exactly one price where neither pressure exists: the price P* at which Q_d = Q_s. That is market equilibrium, and the quantity traded there is Q*. Equilibrium is just the price where the two plans agree — nothing mystical. Notice what the argument did not require: no planner, no coordinator, nobody who knows the whole market. Price does the coordinating on its own. That observation is the starting point of welfare economics.

4 · Shifts versus movements — the most-tested distinction

Here is the distinction examiners test relentlessly, and the vocabulary that keeps it straight.

A change in the good’s own price moves you along a fixed curve. Say “quantity demanded rose” — not “demand rose.” Demand did nothing; the curve never moved.

A change in anything from the frozen background shifts the entire curve, because the whole queue re-forms at every price. For demand, the shifters are: income (up for normal goods, down for inferior goods), prices of substitutes and complements, tastes, expectations of future prices, and the number of buyers. For supply: input costs, technology, taxes and subsidies, expectations, and the number of sellers.

The discipline that earns marks is sequencing. A shift in one curve causes a movement along the other. If demand shifts right, the higher price then calls forth more quantity supplied — supply itself never moved. Marking schemes are strict about this. Write the sequence explicitly: which curve shifted, what shortage or surplus appeared at the old price, and how the price adjusted to clear it. The worked example below does exactly that.

Worked example — the used-textbook market at a campus bookshop

A campus bookshop runs a buy-back scheme for one core first-year textbook. Prices are in pounds; quantities are books per week.

Step 1 — Demand. Students buying the book have demand Q_d = 100 − 2P. At a price of £10, students want 80 copies a week; at £40, only 20. The downward slope is the law of demand in algebra.

Step 2 — Supply. Students selling back their old copies have supply Q_s = −20 + 4P. Below £5 nobody bothers to sell — check: at P = 5, Q_s = 0. Above that, every £1 on the price draws four more copies out of storage boxes.

Step 3 — Solve for equilibrium. Set Q_d = Q_s: 100 − 2P = −20 + 4P, so 120 = 6P and P* = £20. Substitute back: Q* = 100 − 2(20) = 60. Check with supply: −20 + 4(20) = 60. ✓ Sixty books change hands each week at £20.

Step 4 — Perturbation. A second course adds the same textbook to its reading list. More buyers enter at every price: demand shifts right to Q_d = 130 − 2P. Supply is untouched. At the old price of £20, buyers now want 130 − 40 = 90 copies but sellers still offer 60 — excess demand of 30 books a week. Shelves empty by Tuesday.

Step 5 — Resolve. The shortage bids the price up. Solve again: 130 − 2P = −20 + 4P, so 150 = 6P, giving P* = £25 and Q* = 130 − 2(25) = 80.

Step 6 — Interpretation. The demand curve shifted right by 30 at every price, yet quantity traded rose by only 20. Why? The rising price did two jobs at once: it pulled 20 extra copies out of sellers’ storage boxes (a movement along supply), and it priced 10 of the new would-be buyers back out of the market (a movement along the new demand curve). 20 + 10 = 30 — the whole shift, accounted for. Price rationed the shortage from both sides. That double role is the entire point of the model.

Stuck between the algebra and the diagram? This is exactly the gap a one-on-one microeconomics tutor closes in a first session — working your own course’s problem sets until the two views become one model. Book a trial session.

Practice

Q1. A market has demand Q_d = 200 − 4P and supply Q_s = 20 + 2P.
(a) Find the equilibrium price and quantity.
(b) At a price of 25, is there a shortage or a surplus, and how large is it?

Q2. Demand is Q_d = 90 − 3P and supply is Q_s = −10 + 2P.
(a) Find the equilibrium price and quantity.
(b) A rise in input costs changes supply to Q_s = −20 + 2P. Find the new equilibrium, and state which curve shifted and which curve you moved along.

Answers: Q1 (a) P* = 30, Q* = 80; (b) shortage of 30 (Q_d = 100, Q_s = 70). Q2 (a) P* = 20, Q* = 30; (b) P* = 22, Q* = 24 — supply shifted left, and the price rise moved buyers up along an unchanged demand curve.

Key takeaways

• A demand curve ranks buyers by willingness to pay; a supply curve ranks units by cost of production.
• Equilibrium is the one price where Q_d = Q_s — the only price under no pressure to change.
• Own-price changes move you along a curve; background changes (income, input costs, tastes, technology) shift it.
• A shift in one curve causes a movement along the other. Narrate the sequence: shift → shortage or surplus at the old price → price adjusts.
• Solve every equilibrium algebraically, then check the answer in both equations.

Why students choose our microeconomics tutoring

• One-on-one format: every session is private and built around your course — your problem sets, your lecture notes, your exam board or university syllabus.
• University-level specialists: our tutors teach microeconomics as your department teaches it, from intro demand-and-supply through intermediate consumer and producer theory.
• Exam-first preparation: sessions work through past papers and problem sets with marking schemes in view, because the sequencing discipline in Section 4 is where marks are won.

FAQ

Q: What is market equilibrium in microeconomics?
A: It is the price at which quantity demanded equals quantity supplied. At any higher price there is unsold surplus pushing the price down; at any lower price there is a shortage pushing it up. Only at equilibrium is there no pressure on the price to change.

Q: What is the difference between a movement along the demand curve and a shift?
A: A change in the good’s own price causes a movement along a fixed curve. A change in anything else — income, tastes, prices of related goods — shifts the whole curve, because buyers re-form their plans at every price.

Q: How do you calculate equilibrium price and quantity?
A: Set the demand equation equal to the supply equation and solve for P. Substitute that price back into either equation to get Q. Always check by substituting into the other equation too — both must give the same quantity.

Q: Why does the demand curve slope downward?
A: Two reasons. As price rises, buyers substitute towards alternatives, and each buyer’s budget stretches less far than before. Both effects reduce quantity demanded, so price and quantity demanded move in opposite directions.

Q: What happens when demand and supply shift at the same time?
A: One of price or quantity moves in a definite direction; the other depends on the relative sizes of the shifts. If both shift right, quantity certainly rises but price can go either way. Draw both cases before answering — examiners set this deliberately.

Q: Do I need calculus for introductory microeconomics?
A: Mostly no. Intro courses run on linear equations and diagrams like the ones on this page. Calculus enters at intermediate level, with derivatives for marginal analysis and constrained optimisation. If your course is calculus-based, say so when booking and we will match you accordingly.

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