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

This guide covers sections 2.5 (price determination) and 2.6 (price changes) of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. All names and figures are invented and are not real statistics. For quick recall use the revision notes, then test yourself with the practice questions. The wider topic is in The allocation of resources. Course pages: the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics.

What you must be able to do

Section	Outcome
2.5.1 Market equilibrium	Define it, and draw and interpret demand and supply schedules and curves to establish equilibrium price and sales
2.5.2 Market disequilibrium	Define it, and use schedules and curves to identify prices that are not equilibrium prices, with shortages (demand above supply) and surpluses (supply above demand)
2.6.1 Causes of price changes	Explain how changing market conditions change price
2.6.2 Consequences of price changes	Draw demand and supply diagrams showing the new equilibrium price and sales

You are expected to know the shapes and shifts of demand and supply from sections 2.3 and 2.4. This guide uses them and does not re-teach them.

2.5.1 Market equilibrium

A market is any set of arrangements that brings buyers and sellers together. Market equilibrium is the position where the quantity demanded equals the quantity supplied at the prevailing price. The price is the equilibrium price and the quantity bought and sold is the equilibrium quantity, also called the equilibrium level of sales. At that price there is no shortage and no surplus, so buyers and sellers have no reason to change what they do.

Here is an invented market. Town A has a market for reusable water bottles. Quantities are bottles per week and prices are in dollars.

Price per bottle (dollars)	Quantity demanded	Quantity supplied	Gap (demand minus supply)
4	560	260	+300
5	500	300	+200
6	440	340	+100
7	380	380	0
8	320	420	-100
9	260	460	-200
10	200	500	-300

How to find equilibrium from a schedule: read down the two quantity columns until they match. Here both are 380 at a price of 7. The equilibrium price is 7 dollars and equilibrium sales are 380 bottles a week. The value of sales is 7 x 380 = 2,660 dollars a week.

How to find it on a diagram. Measure price up the side and quantity along the bottom. The demand curve slopes downward and the supply curve slopes upward. They cross at one point. Drop a line from that point to the vertical axis for the price, and to the horizontal axis for the quantity. In words: the curves cross at price 7 and quantity 380.

Price
  | D\               /S
  |   \            /
  |     \        /
 7|- - - - - X - - - -     X = (380, price 7)
  |        /   \
  |      /       \
  |    /S          \D
  +----------|-------------- Quantity
            380

Treat the sketch as a reminder of the idea, not a scale drawing. In an exam, label both axes, label both curves, mark the crossing point and show the equilibrium price and quantity on the axes with dotted lines.

Why the market settles there. Buyers and sellers act in their own interest. Competition between them pushes the price towards the level where plans match. This is the price mechanism at work: price acts as the signal that coordinates what is wanted and what is on offer.

2.5.2 Market disequilibrium

Market disequilibrium exists when the price is not the equilibrium price, so quantity demanded and quantity supplied differ.

A shortage (excess demand) occurs when quantity demanded exceeds quantity supplied. The price is below equilibrium.

A surplus (excess supply) occurs when quantity supplied exceeds quantity demanded. The price is above equilibrium.

From the table:

• At a price of 5, demand is 500 and supply is 300. There is a shortage of 500 - 300 = 200 bottles.
• At a price of 9, demand is 260 and supply is 460. There is a surplus of 460 - 260 = 200 bottles.

On a diagram, draw a horizontal line at the chosen price. The gap between the demand curve and the supply curve along that line is the shortage or surplus. If the supply curve is to the left of the demand curve along the line, it is a shortage. If the supply curve is to the right, it is a surplus.

What happens next. Use a chain of reasoning, one step at a time.

Shortage at a price of 5: buyers want more than sellers offer, so some buyers cannot get the product. Some are willing to pay more, and sellers see they can raise price without losing sales. Price rises. As it rises, quantity demanded falls (a contraction of demand) and quantity supplied rises (an extension of supply). The gap narrows and closes at a price of 7.

Surplus at a price of 9: sellers hold unsold stock, which costs money to store. To sell it they cut price. As price falls, quantity demanded rises (an extension of demand) and quantity supplied falls (a contraction of supply). The gap closes at a price of 7.

Notice the terms. The curves do not move during this adjustment. The market moves along them. Use extension and contraction, not increase and decrease, for movements along a curve.

A limit to the process. The adjustment above assumes prices are free to move. If prices adjust slowly, or a seller sets a price in advance, a shortage or surplus can last. Do not assume every market clears instantly.

2.6.1 Causes of price changes

The equilibrium price changes only when demand, supply or both shift. A change in price itself only moves you along a curve. Use the causes from sections 2.3.4 and 2.4.4:

Shift	Possible causes
Demand curve	Income, tastes and fashion, prices of related goods, population, advertising, expectations
Supply curve	Costs of production, technology, number of sellers, weather for farm products, taxes and subsidies, expectations

Describe a cause in a chain: cause, which curve shifts and which way, new gap at the old price, price adjustment, new equilibrium.

2.6.2 Consequences for price and sales

There are four basic cases. Each starts from the Town A equilibrium: price 7, sales 380. The new figures come from the new schedules.

Change	Curve shift	New equilibrium price (dollars)	New equilibrium sales
Rise in demand of 120 at every price	Demand right	8.20	428
Fall in demand of 100 at every price	Demand left	6.00	340
Rise in supply of 80 at every price	Supply right	6.20	428
Fall in supply of 60 at every price	Supply left	7.60	344

The pattern is the main thing to learn:

• Demand right: price up, sales up.
• Demand left: price down, sales down.
• Supply right: price down, sales up.
• Supply left: price up, sales down.

Worked example: a rise in demand

A local campaign makes reusable bottles fashionable. Demand rises by 120 bottles at every price.

1. At the old price of 7, demand is now 380 + 120 = 500, but supply is still 380. There is a shortage of 120.
2. Sellers find stock selling quickly and raise price.
3. As price rises, quantity supplied extends along the supply curve and quantity demanded contracts along the new demand curve.
4. They meet where the quantities are equal. The new demand schedule at 8 is 440 and at 9 is 380. Supply at 8 is 420 and at 9 is 460. So equilibrium lies between 8 and 9. The exact figure is 8.20, where both are 428.

Price rises from 7 to 8.20 dollars, a rise of 1.20 / 7 x 100 = 17.1%. Sales rise from 380 to 428, a rise of 48 / 380 x 100 = 12.6%. The value of sales rises from 2,660 to 8.20 x 428 = 3,509.60 dollars.

Diagram in words: the demand curve shifts right from D to D1. It crosses the unchanged supply curve at a higher price and a higher quantity. Label both equilibria and both axes.

Worked example: a fall in supply

A hot summer damages a farm crop and reduces the supply of a food product. Use the same method: at the old price there is a shortage, price rises, quantity demanded contracts. The new equilibrium has a higher price and lower sales. The supply curve shifts left, so sales fall even though price rises. Many candidates wrongly say sales rise because “price went up”. Look at the quantity axis.

Two curves shifting together

When demand and supply both shift, the result for one variable is certain and for the other it depends on the size of the shifts.

Demand rises by 120 and supply rises by 80 at the same time:

• Sales: both shifts push quantity up. Sales rise to 476.
• Price: demand pushes price up, supply pushes it down. Price depends on which is larger. Here demand rises more, so price rises slightly, to 7.40.

If instead supply rises by 200 while demand rises by 120, the larger supply shift makes price fall to 6.20 and sales rise to 548.

Both shift	Price	Sales
Demand right, supply right	Depends on sizes	Rise
Demand left, supply left	Depends on sizes	Fall
Demand right, supply left	Rise	Depends on sizes
Demand left, supply right	Fall	Depends on sizes

A market with fixed supply

Some markets have supply that cannot respond in the short run. A hall has 600 seats. The supply curve is vertical at 600 tickets. Suppose demand for tickets is 900 at a price of 6 and falls by 100 for every 1 dollar added to the price. There is a shortage of 300 at 6, and the price can rise until demand falls to 600, which happens at a price of 9. If demand then falls, price falls but the quantity sold cannot exceed 600. With a vertical supply curve, all the adjustment is in price.

Evaluation points

Good answers go beyond the four cases.

• Size of the shift: a small shift in demand changes price by little. A large shift changes it more.
• Time: supply often takes longer to adjust than demand. A farmer cannot grow a crop at once, so the short-run price change can be larger than the long-run change.
• Other things equal: each case holds everything else constant. In real markets several things change at once.
• Who gains: a higher price helps sellers who can sell the same or a larger quantity. It hurts buyers. A fall in supply may raise price but sellers lose sales, so their revenue could rise or fall.
• Slow adjustment: shortages and surpluses may last when price cannot move quickly.

Common errors

1. Drawing the shift but forgetting to label the new equilibrium on both axes.
2. Saying “demand falls” when price rises and sales contract. That is a movement along the demand curve.
3. Reading a shortage as a surplus. Check which is larger at the price given.
4. Using “supply increases” for a move along the supply curve.
5. Writing “price goes up so demand goes down” in a question about a shift. Say which curve shifted and why.
6. Giving only the price effect when the question asks about price and sales.
7. Describing the answer as certain when both curves shift.

Next steps

Revise from the revision notes, then try the practice questions and the free diagnostics.

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.