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

This guide covers outcomes a to j of section 1.1.3, Demand, supply and market equilibrium, in the Pearson Edexcel International GCSE Economics specification (code 4EC1), issued as Issue 3 in February 2026. It is a single-tier qualification, so everything here is for every candidate. The content is listed under Paper 1: Microeconomics and Business Economics. All numbers here are made up for illustration, as are the countries and firms.

Related pages: revision notes, practice questions, the wider market system guide, the course hub, the checklist and the free diagnostics.

Outcomes covered

Section	Outcome
1.1.3 a-b	Define demand; show movements along and shifts of the demand curve
1.1.3 c	Shift factors: advertising, income, fashion and tastes, price of substitutes, price of complements, demographic changes
1.1.3 d-e	Define supply; show movements along and shifts of the supply curve
1.1.3 f	Shift factors: costs of production, technology, indirect taxes, subsidies, natural factors
1.1.3 g	Equilibrium price and quantity and how they are determined
1.1.3 h	Diagrams of shifts in real-world situations, excess demand and excess supply
1.1.3 i	Define, calculate and draw excess demand and excess supply
1.1.3 j	How market forces remove excess supply or excess demand

Demand

Demand means the amount of a good or service that buyers will purchase, being both willing and able to pay, at each possible price over a stated period. Wanting a product is not enough. You must also be able to pay.

A demand schedule lists prices and quantities. This invented market is trays of eggs in Country A, each month.

Price per tray	6	8	10	12	14	16
Quantity demanded	640	520	400	280	160	40

Plot price on the vertical axis and quantity on the horizontal axis, then join the points. The line slopes downwards: higher price, lower quantity demanded. Buyers switch to cheaper alternatives, or buy less because the product takes more of their income.

Movement along or shift of the curve

• A change in the price of the good itself moves you along the same curve. If the price rises from 10 to 12, quantity demanded falls from 400 to 280, a fall of 120 trays, or 30%.
• A change in any other factor moves the whole curve. A shift right is an increase in demand: more is bought at every price. A shift left is a decrease in demand.

Keep the vocabulary strict. Price causes a change in quantity demanded. Other factors cause a change in demand.

Factors that shift demand

Factor	Chain of reasoning
Advertising	Persuades more buyers, so more is wanted at each price: shift right
Income	Higher income means more people can afford the good, so demand rises for most goods. For an inferior good, one people drop as they get richer, demand falls
Fashion and tastes	A product becoming popular shifts demand right; going out of fashion shifts it left
Price of a substitute	If a rival good gets dearer, buyers switch to this one, so demand rises. If the rival gets cheaper, demand falls
Price of a complement	If a good bought alongside it gets dearer, people buy less of both, so demand falls. A cheaper complement raises demand
Demographic changes	A change in population size or age structure changes the number of likely buyers

Worked example 1 (demographics). The number of people aged 18 to 24 in a city of Country A rises from 40 000 to 46 000. Percentage change = (46 000 − 40 000) ÷ 40 000 × 100 = 15%. Cafés selling cheap meals aimed at this group see demand shift right. Firms selling to older customers in that city see no gain from this change.

Worked example 2 (income). Incomes in Country A rise and demand for egg trays increases by 120 at every price. New quantity at a price of 12 is 280 + 120 = 400. The curve has shifted right. Quantity demanded at the old price has changed because the curve moved, not because price moved.

Supply

Supply is how much of a good or service firms will offer for sale at each possible price over a stated period. Higher prices make production more profitable, so more is supplied.

Price per tray	6	8	10	12	14	16
Quantity supplied	40	120	200	280	360	440

The supply curve slopes upwards. A price rise from 10 to 12 moves along the curve: quantity supplied rises from 200 to 280, which is (280 − 200) ÷ 200 × 100 = 40%. Any other factor shifts the curve. A shift right is an increase in supply. A shift left is a decrease in supply.

Factors that shift supply

Factor	Chain of reasoning
Costs of production	Dearer feed, wages, rent or energy make each unit less profitable, so supply falls. Cheaper inputs raise supply
Technology	Better machines cut the cost of each unit or raise output, so supply rises
Indirect taxes	A tax on sales raises the cost of selling each unit, so supply falls: the curve moves up by the amount of the tax
Subsidies	A government payment per unit lowers costs, so supply rises: the curve moves down by the subsidy
Natural factors	Floods, drought, storms or disease can destroy output, so supply falls. A good season raises supply

Worked example 3. Feed costs rise and egg farms supply 100 fewer trays at every price. At a price of 12 they now supply 280 − 100 = 180. This is a decrease in supply, shown by a shift left.

Market equilibrium

A market is in equilibrium where quantity demanded equals quantity supplied. The price there is the equilibrium price and the quantity is the equilibrium quantity. There is no pressure for price to change.

Price	Quantity demanded	Quantity supplied	Demand minus supply
6	640	40	+600
8	520	120	+400
10	400	200	+200
12	280	280	0
14	160	360	−200
16	40	440	−400

Equilibrium is at a price of 12, with 280 trays traded. On the diagram it is the point where the downward demand curve crosses the upward supply curve.

Price
 16 |    D                   S
 14 |        \           /
 12 |              E
 10 |        /           \
  8 |    S                   D
    +---------------------------- Quantity
                 280

In words: D falls from left to right, S rises, and they cross at E, where the price is 12 and the quantity is 280. The S end at price 8 lies left of the D end, which shows excess demand there.

Excess demand and excess supply

• Excess demand (a shortage): at a price below equilibrium, quantity demanded is greater than quantity supplied.
• Excess supply (a surplus): at a price above equilibrium, quantity supplied is greater than quantity demanded.

Worked example 4 (calculate). At a price of 8, quantity demanded is 520 and quantity supplied is 120. Excess demand = 520 − 120 = 400 trays. At a price of 16, supply is 440 and demand is 40. Excess supply = 440 − 40 = 400 trays.

To draw it: pick a price on the price axis, draw a horizontal line across to both curves, and label the gap between the curves. Below equilibrium the demand curve is to the right of the supply curve (excess demand). Above equilibrium the supply curve is to the right (excess supply).

How market forces remove an imbalance

Excess supply at a price of 16. Farms hold 400 unsold trays, so sellers cut prices to clear stock. The falling price makes buyers want more (an extension of quantity demanded) and makes farms offer less (a contraction of quantity supplied). At 14 the surplus is 360 − 160 = 200. At 12 it is zero and price stops falling.

Excess demand at a price of 8. Buyers compete for limited stock, shops run out and sellers see they can raise prices without losing sales. The rising price puts some buyers off (a contraction of quantity demanded) and draws out more output (an extension of quantity supplied). The gap closes at 12.

Prices act as signals and as incentives: a rising price tells producers to supply more and buyers to buy less.

Diagrams of shifts in real-world situations

Each shift gives a new equilibrium.

Change	Curve and direction	Price	Quantity
Increase in demand	Demand right	Rises	Rises
Decrease in demand	Demand left	Falls	Falls
Increase in supply	Supply right	Falls	Rises
Decrease in supply	Supply left	Rises	Falls

Worked example 5 (calculation). Starting from price 12 and quantity 280, incomes rise (demand up by 120 at each price). The new equilibrium is price 13.2 and quantity 328. Price has risen by (13.2 − 12) ÷ 12 × 100 = 10% and quantity by (328 − 280) ÷ 280 × 100 = 17.1%.

Worked example 6 (feed costs). Supply falls by 100 at each price. The new equilibrium is price 13 and quantity 220. Price rises by 8.3% and quantity falls by 21.4%.

Worked example 7 (a tax and a subsidy). A tax of 2 per tray moves the supply curve up by 2 at every quantity. The new equilibrium is price 12.8 and quantity 232. A subsidy of 2 per tray moves it down by 2: the equilibrium becomes price 11.2 and quantity 328.

Worked example 8 (two shifts together). Incomes rise and feed costs rise. Demand shifts right and supply shifts left. Price certainly rises, to 14.2. Quantity could rise or fall depending on the size of the shifts and the slopes of the curves. Here it is 268, below the original 280.

Write a real-world answer in this order: name the event, name the curve it shifts, give the direction, then state the new equilibrium price and quantity.

A drought (a natural factor) reduces the harvest in Country A. Supply of rice shifts left, creating excess demand at the old price. Price rises until demand matches the smaller supply, so price is higher and quantity is lower.

Drawing diagrams under the Draw command word

The specification’s command-word table says a Draw answer is a diagram containing two or three separate awardable points. Aim to include these:

1. Axes labelled price (vertical) and quantity (horizontal).
2. Curves labelled D and S, and the shifted curve labelled D1 or S1.
3. The original and new equilibrium shown, with the prices and quantities marked on the axes.

Common errors

• Writing “demand falls” when only the price of the good changed. That is a fall in quantity demanded.
• Shifting a curve for a price change, or sliding along it for a non-price change.
• Treating a rise in the price of a complement as a rise in demand.
• Mixing up excess demand and excess supply. Check whether the price is below or above equilibrium.
• Shifting both curves when the event affects only one.
• Describing a tax as a shift down (it is up) or a subsidy as a shift up (it is down).
• Stating the new price but not the new quantity.

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.