Cambridge A Level Economics: Demand, supply and market equilibrium (9708) – Revision Notes

These notes condense sections 2.1 (Demand and supply curves) and 2.4 (The interaction of demand and supply) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. This is AS Level content, assumed knowledge for A Level Papers 3 and 4. Read the study guide for full explanations, then test yourself with the practice questions. The course hub and checklist show the rest of the syllabus, and a free 10-minute diagnostic shows where to focus. All figures are invented.

Definitions to know word for word

Term	Definition
Effective demand (2.1.1)	Willingness to buy at a price, backed by the ability to pay
Individual demand (2.1.2)	Quantity one buyer will purchase at each price
Market demand (2.1.2)	Sum of all individual demands at each price
Market supply (2.1.2)	Sum of all firms’ supplies at each price
Equilibrium (2.4.1)	Price where buyers’ plans and sellers’ plans match, so nothing pushes price up or down
Disequilibrium (2.4.1)	Any price where the two quantities differ
Excess demand	Quantity demanded above quantity supplied (a shortage)
Excess supply	Quantity supplied above quantity demanded (a surplus)

Shift or movement (2.1.5 to 2.1.7)

Cause	Demand	Supply
Own price changes	Movement along D	Movement along S
Income (normal good) up	D right	none
Price of substitute up	D right	none
Price of complement up	D left	none
Tastes, population, expectations	D shifts	expectations shift S
Costs of production up	none	S left
Technology improves	none	S right
Indirect tax imposed	none	S left
Subsidy introduced	none	S right
Number of firms rises	none	S right

Memory line: price moves you along, everything else shifts you. Inferior goods are the exception to the income rule: higher income shifts D left.

Method: finding a new equilibrium

1. Identify the market and the curve the event affects.
2. Decide the direction of the shift and say whether it is a change in demand or in supply.
3. Show the shift on a diagram, with the old and new curves labelled.
4. Read the new price and quantity, and describe the movement along the other curve.
5. Add a chain: why does price move, and who responds?

Worked reminder: equations

Demand is Qd = 60 - 2P and supply is Qs = 3P.

• Equilibrium: 60 - 2P = 3P, so 60 = 5P, P = 12, Q = 36.
• Supply rises by 10 at every price: Qs = 3P + 10. Then 60 - 2P = 3P + 10, so 50 = 5P, P = 10, Q = 40. Price falls and quantity rises.
• Demand rises by 10 instead: Qd = 70 - 2P. Then 70 - 2P = 3P, so 70 = 5P, P = 14, Q = 42.
• Disequilibrium at P = 14 with the original curves: Qd = 60 - 28 = 32, Qs = 42, so excess supply of 10.

Method: set Qd equal to Qs, collect the P terms on one side, solve for P, then substitute back for Q. Check your answer in both equations.

Summary of outcomes of shifts

Event	Price	Quantity
D shifts right	higher	greater
D shifts left	lower	smaller
S shifts right	lower	greater
S shifts left	higher	smaller
Both rise	unclear	up
Demand rises, supply falls	up	unclear

With two shifts at once, one outcome can be stated with confidence while the other turns on the relative size of the shifts.

Related markets (2.4.3)

Relationship	Meaning	Chain
Joint demand (complements)	Goods used together	Price of one rises, its quantity demanded falls, demand for the other falls
Alternative demand (substitutes)	Goods that replace each other	Price of one rises, buyers switch, demand for the other rises
Derived demand	Demand for an input comes from demand for the product it makes	Demand for product falls, demand for the input falls
Joint supply	One process yields two products	Higher demand for the main product raises output, so supply of the by-product rises and its price falls

Evaluation prompts: how close are the substitutes? What share of final cost is the input? Can producers hold stocks? How long does adjustment take?

Functions of price (2.4.4)

• Rationing. Price rises until quantity demanded matches the limited quantity available.
• Signalling. Price changes transmit consumer preferences to producers and show scarcity.
• Incentivising. Higher price and profit encourage firms to supply and resources to move into the market. Lower price encourages buyers to economise.

Evaluation prompts: rationing by price depends on ability to pay, not need. Signals need accurate information. Supply may be slow to respond.

Must-know distinctions

• Want versus effective demand. A want has no money behind it. Effective demand does.
• Change in demand versus change in quantity demanded. The first is a shift caused by a non-price determinant. The second is a movement caused by the good’s own price. The same split applies on the supply side.
• Individual versus market curves. Market curves come from adding quantities at each price, not prices at each quantity.
• Shortage versus scarcity. A shortage (excess demand) is a market event at one price. Scarcity is the permanent economic problem.
• Complements versus substitutes. Complements move in opposite directions when one price changes. Substitutes respond in the same direction as the price that changed.
• Derived demand versus joint demand. Derived demand links an input to its product. Joint demand links two goods bought together.
• Joint supply versus competing uses. Joint supply means one process gives two goods, so they rise together. If a firm can make either good with the same land, the goods compete for that land and a rise in one price shifts the other supply curve left.

Worked reminder: rationing

A venue has 300 fixed places. Demand is Qd = 900 - 5P, so 900 - 5P = 300 gives P = 120. If a rival event is cancelled and demand becomes Qd = 1000 - 5P, then at 120 demand is 1000 - 600 = 400, so excess demand is 100. Price rises to 140, where 1000 - 700 = 300. The higher price rations the places to buyers with the strongest effective demand, signals popularity, and gives organisers an incentive to add places next time.

Diagram checklist

For every diagram, check that you have:

1. Price up the side and quantity along the base, with units if given.
2. Curves labelled D and S, and D1, D2, S1, S2 after a shift.
3. The original equilibrium marked, and the new one marked.
4. Dotted lines from each equilibrium to both axes.
5. An arrow or a sentence for each shift.

For disequilibrium, mark the price, read the quantity demanded and quantity supplied from the two curves, and label the gap as excess demand or excess supply.

Evaluation chains

• Shifts. A shift in demand raises price only if supply is not perfectly flexible. How much price changes depends on how steep the curves are, which links to elasticity (2.2 and 2.3).
• Related markets. The effect of a price change in one market depends on how closely the goods are linked, how long buyers and sellers take to adjust, and what else changes at the same time.
• Price as rationing. It is efficient when buyers value the good by willingness to pay, but it can conflict with fairness if incomes are very unequal.
• Signalling and incentives. They work best when information is good and firms can respond. They work poorly when supply is fixed in the short run, as with farm crops after planting.

Quick self-test

1. Define effective demand.
2. A fall in the price of margarine shifts the demand curve for margarine. True or false?
3. Name two causes of a rightward shift in supply.
4. The price of a substitute for good X rises. Which way does D for X shift?
5. Qd = 50 - 2P and Qs = 3P. Find the equilibrium.
6. Supply changes to Qs = 3P - 15. Find the new equilibrium.
7. State the type of market relationship between wheat and flour demand.
8. Cattle are reared for beef and hides. Demand for beef falls. What happens to the supply of hides?
9. Price and quantity both fall. Which curve most likely shifted, and which way?
10. Give the three functions of price.

Answers

1. Willingness to buy at a given price, backed by the ability to pay.
2. False. It is a movement along the curve.
3. Better technology; a subsidy; lower input costs; more firms.
4. Right.
5. 50 - 2P = 3P, so P = 10, Q = 30.
6. 50 - 2P = 3P - 15, so 65 = 5P, P = 13, Q = 24. Price rises and quantity falls.
7. Derived demand.
8. It shifts left, as fewer cattle are reared.
9. Demand shifted left.
10. Rationing, signalling and incentivising.

Where marks are usually lost

• Calling a price-led change a shift in the curve.
• Leaving out axis labels, curve labels or the old and new equilibrium points.
• Writing “supply” when the question is about quantity supplied.
• Saying a shift “causes a shortage” without saying price then adjusts.
• Giving a result of two shifts as certain on both price and quantity.
• Describing complements and substitutes the wrong way round.
• Listing the three functions of price without applying them to the market in the question.
• Presenting an evaluation as a list of points rather than a judgement with a reason.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, sections 2.1 and 2.4.