Pearson Edexcel International GCSE Economics: Demand, supply and market equilibrium (4EC1) – Revision Notes

These condensed notes follow section 1.1.3, Demand, supply and market equilibrium, in the Pearson Edexcel International GCSE Economics specification (code 4EC1), Issue 3 of February 2026. The qualification is single tier. For full explanations and worked examples, read the study guide first, then test yourself with the practice questions. Other links: the course hub, the checklist, the free diagnostics and the wider market system revision notes. All numbers are made up for illustration.

Key definitions (1.1.3 a, d, g, i)

Term	Definition
Demand	How much buyers will purchase, being willing and able to pay, at each possible price over a stated period
Supply	How much firms will offer for sale at each possible price over a stated period
Equilibrium price	The price where buyers’ plans and sellers’ plans match exactly
Equilibrium quantity	The quantity bought and sold at the equilibrium price
Excess demand	Buyers want more than sellers offer (price below equilibrium)
Excess supply	Sellers offer more than buyers want (price above equilibrium)

Movement or shift (1.1.3 b, e)

	Cause	What happens on the diagram
Movement along	Change in the price of the good itself	Slide along the same curve
Shift	Change in any other factor	Whole curve moves

• Demand curve: slopes down. Supply curve: slopes up.
• Shift right = increase. Shift left = decrease.
• Say “quantity demanded” or “quantity supplied” for price-led changes, and “demand” or “supply” for shifts.

Demand shift factors (1.1.3 c)

Factor	Demand rises (shift right) when	Demand falls (shift left) when
Advertising	Campaign persuades more buyers	Campaign stops, or a rival advertises more
Income	Incomes rise (normal goods)	Incomes fall (normal goods)
Fashion and tastes	Product becomes popular	Product goes out of fashion
Price of substitute	Rival’s price rises	Rival’s price falls
Price of complement	Complement’s price falls	Complement’s price rises
Demographic changes	More people in the target group	Fewer people in the target group

An inferior good behaves the other way round for income: as incomes rise, demand for it falls.

Supply shift factors (1.1.3 f)

Factor	Supply rises (shift right) when	Supply falls (shift left) when
Costs of production	Wages, materials, rent or energy get cheaper	They get dearer
Technology	Better machines or methods are adopted	A breakdown or loss of technology
Indirect taxes	A tax is removed or cut	A tax is introduced or raised (curve moves up)
Subsidies	A subsidy is introduced or raised (curve moves down)	A subsidy is removed
Natural factors	Good weather, a good harvest	Drought, flood, storm, disease

Method: finding equilibrium from a table

1. Write the three columns: price, quantity demanded, quantity supplied.
2. Add a fourth column: demand minus supply.
3. Equilibrium is the price where the fourth column is zero.
4. A positive gap means excess demand. A negative gap means excess supply, and its size is the number ignoring the sign.

Worked reminder. A small market for second-hand bicycles in Town A.

Price	Quantity demanded	Quantity supplied	Demand minus supply
1	90	10	+80
2	70	30	+40
3	50	50	0
4	30	70	−40
5	10	90	−80

• Equilibrium: price 3, quantity 50.
• At price 1: excess demand = 90 − 10 = 80.
• At price 5: excess supply = 90 − 10 = 80.
• Moving price from 2 to 3 changes quantity demanded from 70 to 50, a fall of (50 − 70) ÷ 70 × 100 = −28.6%.

Method: showing a shift on a diagram (1.1.3 h)

1. Label the upright axis price and the flat axis quantity.
2. Draw D and S crossing at the original equilibrium. Mark P and Q.
3. Shift the one curve affected and label it D1 or S1.
4. Mark the new equilibrium P1 and Q1 on both axes.
5. State in words whether price and quantity have risen or fallen.

Change	Price	Quantity
Demand increases	Higher	Higher
Demand decreases	Lower	Lower
Supply increases	Lower	Higher
Supply decreases	Higher	Lower

For two shifts at once, only one result is guaranteed. The other turns on which shift is bigger. Demand up and supply up: quantity certainly rises, price unclear. Demand up and supply down: price certainly rises, quantity unclear.

Worked reminder. In the bicycle market, demand rises by 30 at every price. The new equilibrium is where 140 − 20 × price = 20 × price − 10, so price = 3.75 and quantity = 65. Both rise, as the table predicts.

Drawing excess demand and excess supply (1.1.3 h, i)

1. Draw D and S crossing at equilibrium E.
2. Pick a price below E on the price axis and draw a horizontal line across to both curves.
3. The supply curve is the left-hand point and the demand curve the right-hand point. The horizontal gap between them is excess demand.
4. Pick a price above E and repeat. Now the demand curve is the left-hand point and the supply curve the right-hand point. The gap is excess supply.
5. Label the gap and, if you have figures, write its size.

A chain of analysis in four links

Strong answers move from event to outcome in steps. Template: event, curve, direction, result.

• Event: a new health report praises oats.
• Curve: fashion and tastes change, so demand for oats shifts.
• Direction: right, because more is wanted at every price.
• Result: excess demand at the old price, so price rises, and the equilibrium price and quantity both rise.

Add a short comment on size or time where you can. A small shift gives a small change, and a seasonal factor such as a harvest may last only a few months.

How market forces remove an imbalance (1.1.3 j)

Excess supply, price above equilibrium:

• Stock is left unsold, so sellers lower prices.
• The fall in price extends quantity demanded and contracts quantity supplied.
• The gap narrows until the two quantities are equal and the price stops falling.

Excess demand, price below equilibrium:

• Shortages appear and buyers compete.
• Sellers raise prices without losing sales.
• The rise in price contracts quantity demanded and extends quantity supplied until the gap closes.

The price signals what is scarce or plentiful and gives producers and consumers a reason to change what they do. No one has to plan it.

Must-know distinctions

• Change in quantity demanded (price moved, slide along) versus change in demand (other factor, curve shifts).
• Substitute (rival, same need) versus complement (used together). A dearer substitute raises demand for this good. A dearer complement lowers it.
• Indirect tax (shifts supply up and left) versus subsidy (shifts supply down and right).
• Excess demand (price too low) versus excess supply (price too high).
• Equilibrium (the plan of buyers and sellers match) versus a price that is “fair”. Equilibrium says nothing about fairness.

Quick self-test

1. Define supply.
2. A pizza shop’s price rises. Is this a shift of the demand curve for pizzas?
3. The price of coffee rises. What happens to demand for tea, a substitute?
4. Name two demographic changes that could raise demand for a product.
5. Use the bicycle table: what is the excess demand at price 2?
6. A phone firm advertises and demand rises by 25% from 240. Calculate the new quantity.
7. A farm supplies 200 units. A flood cuts supply by 15% at that price. Calculate the new quantity.
8. A new machine cuts costs for tea producers. State the direction of the shift and the effect on price.
9. A subsidy is given to bus operators. State the effect on supply and equilibrium price.
10. At the bicycle price of 5, what do sellers do, and what does this do to the quantity demanded?

Answers

1. How much firms will offer for sale at each possible price over a stated period.
2. No. A change in the good’s own price moves along the demand curve (a fall in quantity demanded).
3. It rises: buyers switch to tea, so the demand curve shifts right.
4. For example a rise in population, or more people in a particular age group. A rise in the number of older people raises demand for products they use.
5. 70 − 30 = 40.
6. 240 × 1.25 = 300.
7. 200 × 0.85 = 170.
8. Supply shifts right, so the equilibrium price falls.
9. Supply increases (curve shifts right or down), so the equilibrium price falls and quantity rises.
10. There is excess supply of 80, so sellers cut price, and quantity demanded rises as price falls.

Where marks are usually lost

• Using “demand falls” for a price rise instead of “quantity demanded falls”.
• Shifting the wrong curve, for example moving supply for a change in income.
• Moving a curve in the wrong direction for a tax or a subsidy.
• Treating a rise in the price of a complement like a rise in the price of a substitute.
• Forgetting the new quantity, or giving only the direction of price.
• Drawing a diagram with unlabelled axes, curves or equilibrium points.
• Calculating excess demand with supply minus demand, or giving a negative size for excess supply without saying what it means.
• Calculating a percentage change on the new figure instead of the original.
• Giving a factor with no chain, such as “technology” with no link to costs and supply.

Official syllabus

Pearson Edexcel International GCSE in Economics (4EC1) specification, Issue 3, February 2026, for first teaching September 2017, published by Pearson Education Limited, section 1.1.3.