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2.4.3 Draw the interaction of demand and supply

2.4.3 Draw the interaction of demand and supply

Draw both curves on one set of axes

  1. Put price on the vertical axis and quantity on the horizontal axis, using the same axes for both curves, as in 2.2.2 and 2.3.2.
  2. Draw demand falling from top left to bottom right and label it D, then supply rising from bottom left to top right and label it S.
  3. Use one quantity axis for both, because the whole point of the diagram is to compare the two quantities at the same price.

Mark the equilibrium where the curves cross

  1. The crossing point is the only place on the diagram where quantity demanded equals quantity supplied.
  2. Drop a dashed line down to the quantity axis and across to the price axis, then label them Pe and Qe.
  3. Label the crossing point itself if the question asks you to refer to it later, since a labelled point is easier to write about.

Show a shortage or surplus off equilibrium

  1. Draw a horizontal line at the price the question names, then read the quantity where it meets each curve.
  2. Below equilibrium the demand quantity is the larger one, so mark the gap between the curves and label it excess demand.
  3. Above equilibrium the supply quantity is the larger one, so the same gap is labelled excess supply.
  4. Add an arrow on the price axis showing which way the price will move, because that is what the gap causes.

A demand and supply diagram headed Surplus, with equilibrium at £2.00 and 600: at the higher price of £2.50 demand is 450 and supply is 750, and the horizontal gap between the curves is labelled Surplus = 300, with arrows showing demand extending and supply contracting as the price falls back to £2.00.

Show a shift as a second complete curve

  1. Draw the new curve as a whole line roughly parallel to the original, label it D1 and D2 or S1 and S2, and add an arrow.
  2. Mark the new crossing point and label the new price and quantity, since the shift is only worth drawing if its effect is visible.
  3. Move one curve at a time unless the question says both have changed, because two shifts at once make the outcome ambiguous.

Supply Shift.png

Common Mistake
  • Do not move a curve because the good's own price changed, since that is a movement along it, as covered in 2.2.4 and 2.3.4.
  • Do not rub out the original curve, because the comparison between old and new is what the diagram exists to show.
Exam technique
  • Use a ruler and leave the construction lines in, because the dashed lines to the axes are part of showing the answer.
  • Refer to the diagram in your writing by its labels, since a diagram and an answer that never mention each other are marked as two separate things.
Self review
  • Which variable goes on the vertical axis of a demand and supply diagram?
  • Where on the diagram is the equilibrium?
  • How would you show excess demand on a diagram?
  • How is a shift of supply drawn?
  • Why should the original curve be left on the diagram when showing a shift?
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Draw price on the vertical axis, labelled P, and quantity on the horizontal axis, labelled Q. Use one set of axes so quantity demanded and quantity supplied can be compared at the same price.

A basic model diagram looks like this:

                 P
                 ^
                 |
             D\  |       /S
                \|     /
                 \   /
                  \ /
                   X
                  / \
                /     \
              /         \
                 +--------------> Q

The two curves intersect at X. Demand, labelled D, slopes downward from top left to bottom right. Supply, labelled S, slopes upward from bottom left to top right.

The downward demand curve shows that a lower price is associated with a greater quantity demanded. The upward supply curve shows that a higher price is associated with a greater quantity supplied.

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Which variable goes on the vertical axis of a demand and supply diagram?

2.4.3 Draw the interaction of demand and supply Revision Guide

  1. GCSE
  2. /Economics
  3. /2.4.3 Draw the interaction of demand and supply

Revision notes for OCR GCSE Economics 2.4.3 Draw the interaction of demand and supply: explanations and worked examples.

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