Supply and Demand
Equilibrium price and quantity from intersecting curves — and how shocks move the equilibrium.
Built and reviewed by Stephen Omukoko Okoth
Mathematical Economist · ex-Morgan Stanley FI · Equilar
Theory
What the model says, and why
Two curves, one equilibrium. The demand curve slopes downward — at higher prices, fewer buyers want the good. The supply curve slopes upward — at higher prices, more producers want to sell. Where they cross is the price and quantity at which the market clears: every buyer who wanted to buy at that price found a seller, and vice versa.
The simplest linear version:
Supply: P = c + d · Q
Equilibrium: Q* = (a − c) / (b + d) P* = a − b · Q*
The model is a simplification — it assumes price-taking actors, free entry, no externalities, no information asymmetries. It still does the job of teaching the most important idea in economics: prices coordinate decisions. Nothing else in the syllabus makes sense without this idea first.
Shocks shift the curves. A drought reduces supply (the supply curve shifts left); a tax cut on consumers raises demand (the demand curve shifts right). Quantity and price both move; whether one rises and the other falls or they move together depends on which curve shifted, by how much, and the relative slopes.
Interactive playground
Move the parameters, watch the equilibrium move
Inputs
Curve parameters
Shocks
Equilibrium
Q* = 53.33, P* = 46.67
Equilibrium quantity (Q*)
53.33
Equilibrium price (P*)
46.67
In the classroom
How to teach it well
Recommended sequencing. Start by introducing only the demand curve and walking through why it slopes down. Then add the supply curve. Resist the urge to draw the equilibrium first — let students see the curves separately before they see them cross.
Three classic shock exercises. (1) A drought hits a coffee-producing region — show the supply curve shifting left, and ask what happens to global prices and quantity. (2) A health study triggers a craze for blueberries — demand right-shifts. (3) Both at once — supply down, demand up — quantity ambiguous, price unambiguously up. The third one teaches that the model gives you direction, not always magnitude.
The honest caveat. Real markets often look messier than this. Sticky prices, search costs, branding, oligopoly — they all violate the assumptions. The supply-and-demand model isn’t a literal description; it’s the disciplined first guess any other story has to depart from.
For African contexts specifically. Maize prices in regional markets, cement prices around major construction projects, and matatu fares before holiday weekends are all good real examples. KNBS publishes monthly retail price data that can ground exercises in actual numbers.