Supply, demand, and market equilibrium

This course is a part of AP®︎ Microeconomics, a 11-course Topic series from Khan Academy.

This unit analyzes of the determinants of supply and demand and the ways in which changes in these determinants affect equilibrium price and output. As part of this, we make the important distinction between movements along the curves and shifts in the curves. The unit also emphasizes the impact of government policies, such as price floors and ceilings, excise taxes, tariffs, and quotas on the free-market price and quantity exchanged. The concepts of consumer surplus and producer surplus are also introduced. Finally, we discuss elasticity, including calculating price, cross-price, income elasticities of demand, and the price elasticity of supply

This course contains 10 segments:

The demand curve

You've probably heard of supply and demand. Well, this tutorial focuses on the demand part. All else equal, do people want more or less of something if the price goes down (what would you do)? Not only will you get an intuition for the way we typically depict a demand curve, you'll get an understanding for what might shift it.

The supply curve

Now we'll focus on the "supply" part of supply and demand. Supply curves (as we typically depict them) come out of the idea that producers will make more if they get paid more.

Market equilibrium

You understand demand and supply. This tutorial puts it all together by thinking about where the two curves intersect. This point represents the equilibrium price and quantity which is, in an ideal world, where the market would transact.

What drives oil prices

This tutorial tries to address a very important question in the real world--what drives oil prices? And we will do it using the tools of the supply and demand curves.

Price elasticity of demand

You're familiar with supply and demand curves already. In this tutorial we'll explore what implications their steepness (or lack of) implies. Price elasticity is a measure of how sensitive something is to price.

Elasticity and total revenue

Cross-price elasticity of demand

Price elasticity of supply

Consumer and producer surplus

Many times, the equilibrium price is lower than the highest price some folks are willing to pay. For all consumers, this is called consumer surplus. Similarly, the price might be higher than the minimum price at which some are willing to produce. For all the producers, this is called producer surplus. This tutorial covers them both with an emphasis on the visual.

Deadweight loss

We can often lose economic efficiency because of things like price floors, ceilings and taxes. This loss in surplus (people who have more marginal benefit than marginal cost are not buying or people who have more marginal cost than benefit are buying) is called deadweight loss.