Cambridge IGCSE Economics: Equilibrium, disequilibrium and price changes (0455) – Revision Notes

These notes condense sections 2.5 (price determination) and 2.6 (price changes) of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. For full explanations read the study guide. Test yourself with the practice questions. Course pages: the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics. Every figure below is invented and is not a real statistic.

Key terms

Term	Meaning
Market equilibrium (2.5.1)	Quantity demanded equals quantity supplied at the prevailing price
Equilibrium price	The price at which the market clears, with no shortage or surplus
Equilibrium quantity (sales)	The quantity bought and sold at the equilibrium price
Market disequilibrium (2.5.2)	The price is not the equilibrium price, so the two quantities differ
Shortage (excess demand)	Quantity demanded exceeds quantity supplied; price is below equilibrium
Surplus (excess supply)	Quantity supplied exceeds quantity demanded; price is above equilibrium
Extension / contraction	Movement along a curve caused by a change in the good’s own price
Increase / decrease	Shift of a whole curve caused by a change in a condition of demand or supply

Reading a schedule

Invented market: honey jars in Region B, jars per week, prices in dollars.

Price	Quantity demanded	Quantity supplied	Demand minus supply
4	680	280	+400
5	600	400	+200
6	520	520	0
7	440	640	-200
8	360	760	-400
9	280	880	-600

Method in steps:

1. Find the row where the two quantities match. Here price 6 and quantity 520.
2. For any other price, subtract supply from demand. A positive result is a shortage. A negative result is a surplus.
3. State the size, with units: “shortage of 400 jars at a price of 4”.
4. Value of sales at equilibrium: price x quantity = 6 x 520 = 3,120 dollars a week.

Drawing the equilibrium diagram

1. Vertical axis: price. Horizontal axis: quantity of honey per week.
2. Draw a downward-sloping demand curve D and an upward-sloping supply curve S.
3. Mark the crossing point as the equilibrium.
4. Use dotted lines to show equilibrium price on the vertical axis and equilibrium quantity on the horizontal axis.
5. For a shortage or surplus, draw a horizontal line at the given price and mark the gap between the curves.

Shortage: price below equilibrium     Surplus: price above equilibrium
 gap runs from S (left) to D (right)   gap runs from D (left) to S (right)

Adjustment chains

Shortage chain: price below equilibrium, demand exceeds supply, buyers compete or are turned away, sellers raise price, quantity demanded contracts, quantity supplied extends, gap closes at equilibrium.

Surplus chain: price above equilibrium, supply exceeds demand, stock builds up unsold, sellers cut price, quantity demanded extends, quantity supplied contracts, gap closes at equilibrium.

In both chains the curves stay where they are. Only the point on each curve changes.

Price changes: shifts of one curve

Event	Curve	New price	New sales
Demand increases	D shifts right	Rises	Rises
Demand decreases	D shifts left	Falls	Falls
Supply increases	S shifts right	Falls	Rises
Supply decreases	S shifts left	Rises	Falls

Method for any “explain the change” question:

1. Name the cause (for example, a poor harvest raises costs and cuts output).
2. Say which curve shifts, and in which direction.
3. State the gap at the old price: shortage or surplus.
4. Say how price moves and what happens along the other curve.
5. State the new equilibrium price and sales.

Worked reminder: a supply decrease

A poor harvest reduces honey supply by 240 jars at every price. Supply becomes 240 lower at every price.

• At the old price of 6, demand is 520. New supply is 280. Shortage of 520 - 280 = 240 jars.
• Price rises. The new equilibrium is price 7.20 and 424 jars.
• Price rise: 1.20 / 6 x 100 = 20%. Sales change: (424 - 520) / 520 x 100 = -18.5%.
• Value of sales: 7.20 x 424 = 3,052.80 dollars, below the earlier 3,120. A higher price did not raise sellers’ revenue because the fall in sales was large.

Worked reminder: a demand decrease

Fashion changes and demand falls by 120 jars at every price.

• At the old price of 6, demand is 400 and supply is 520. Surplus of 120 jars.
• Price falls. The new equilibrium is price 5.40 and 448 jars.
• Price change: -0.60 / 6 x 100 = -10%. Sales change: (448 - 520) / 520 x 100 = -13.8%.

Both curves shift

Shifts	Price	Sales
Both D and S increase	Depends on which shift is larger	Rise
Both D and S decrease	Depends on which shift is larger	Fall
D increases, S decreases	Rises	Depends on which shift is larger
D decreases, S increases	Falls	Depends on which shift is larger

Always say which variable is certain and which is uncertain. Then state what the answer depends on.

Conditions that shift the curves

Demand: income, tastes, prices of related goods, population, advertising, expectations. Supply: costs, technology, number of sellers, weather, taxes and subsidies, expectations. A change in the price of the good itself is never a cause of a shift. It moves you along the curve.

Must-know distinctions

• Shortage versus surplus: look at which quantity is larger at the stated price.
• Extension or contraction versus increase or decrease: movement along versus shift.
• Equilibrium price versus equilibrium quantity: always give both.
• Change in sales versus change in revenue: sales is a quantity, revenue is price times quantity.
• A market at disequilibrium for a short time versus one that is stuck: adjustment may be slow.

Evaluation reminders

Add one or two of these when a question asks you to assess or discuss, not just explain.

• Size: a small shift changes price a little, a large shift changes it a lot.
• Time: supply is often slower to respond than demand, so the short-run price change can be bigger than the long-run one.
• Other things equal: real markets have several changes at once, so the outcome may differ from the single-shift case.
• Winners and losers: buyers pay more after a price rise, but sellers’ revenue depends on both the new price and the new quantity.
• Fixed supply: where supply cannot change in the short run, the supply curve is vertical and the whole adjustment falls on price.

Wording to use in answers

• “At the old price there is a shortage of … because quantity demanded exceeds quantity supplied.”
• “This causes price to rise, which leads to a contraction in quantity demanded and an extension in quantity supplied.”
• “The new equilibrium is at a higher price and a lower quantity.”
• “The effect on price is uncertain because it depends on the relative size of the two shifts.”

Quick self-test

1. Define market equilibrium.
2. Using the honey table, what is the shortage at a price of 5?
3. What is the surplus at a price of 8?
4. Which words describe the move along the supply curve when price rises?
5. A rise in incomes increases demand for honey, a normal good. What happens to equilibrium price and sales?
6. A new beekeeper joins and supply rises. What happens to price and sales?
7. Demand for honey rises by 80 jars at every price (the demand curve is shifted right). The new equilibrium is price 6.40 and 568 jars. Calculate the percentage rise in price.
8. Demand and supply both increase. What is certain, and what is uncertain?
9. After the poor harvest, how big is the shortage at the old price of 6?
10. Explain why a shortage tends to disappear in a free market.

Answers

1. The position where quantity demanded equals quantity supplied at the prevailing price, so there is no shortage or surplus.
2. 600 - 400 = a shortage of 200 jars.
3. 760 - 360 = a surplus of 400 jars.
4. An extension of supply.
5. Demand shifts right. A shortage appears at the old price, so price rises and sales rise.
6. Supply shifts right. A surplus appears at the old price, so price falls and sales rise.
7. (6.40 - 6) / 6 x 100 = 6.7%.
8. Sales rise for certain. Price could rise, fall or stay the same, depending on which shift is larger.
9. 240 jars (demand 520, new supply 280).
10. Buyers compete for limited stock, so sellers can raise price without losing sales. As price rises, quantity demanded contracts and quantity supplied extends, until the two match.

Where marks are usually lost

• Writing “demand rises” when the price falls and quantity demanded extends.
• Drawing a shift without labelling the new equilibrium price and quantity.
• Answering only about price when the question says price and sales.
• Calling a shortage a surplus because the quantities were read from the wrong columns.
• Saying a supply decrease raises sales because price rose.
• Treating the double-shift case as if the answer were certain.
• Leaving out units, such as jars per week or dollars.
• Starting a chain of reasoning at the end result instead of at the cause.
• Forgetting to say that the gap is at the old price before price adjusts.

Next steps

Work through the practice questions and return to the study guide for any weak point.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment: sections 2.5 Price determination and 2.6 Price changes.