Cambridge A Level Economics 9708

Demand and supply

A change in the good’s own price causes a movement along its demand or supply curve; a change in anything else — income, the price of a related good, costs, technology, taxes — shifts the whole curve. The market settles where quantity demanded equals quantity supplied. When a curve shifts, the price moves to clear the excess demand or supply until a new equilibrium is reached.

On Cambridge 9708 AS Paper 1 the questions turn almost entirely on one distinction: is this a movement along a curve, or a shift of it?

Updated 28 September 2026

How much it is worth

Demand and supply: 142 questions across 30 real Cambridge 9708 Paper 1 sittings — 15.8% of the total, and it came up on every one of them. How that ranks against every other 9708 topic →

Demand, and what shifts it

Demand is the quantity consumers are willing and able to buy at each price. The curve slopes down: at a lower price more is bought. The demand curve shifts right when:

incomes rise (for a normal good — an inferior good’s demand falls);
the price of a substitute rises, or the price of a complement falls;
tastes move towards the good, or advertising succeeds;
the population grows, or consumers expect prices to rise.

Supply, and what shifts it

Supply is the quantity producers are willing and able to sell at each price; the curve slopes up. It shifts right when:

costs of production fall — wages, raw materials, energy;
technology improves productivity;
an indirect tax is cut or a subsidy is given;
more firms enter, or (for crops) the weather is good.

An indirect tax shifts supply left — a specific tax moves it up by exactly the tax per unit — and a subsidy shifts it right. How the tax is shared between buyers and sellers depends on the elasticities.

Equilibrium and the price mechanism

Above the equilibrium price there is excess supply, and sellers cut prices; below it there is excess demand, and the price is bid up. The price mechanism does three jobs as it moves:

Signalling — a rising price tells producers what consumers want more of.
Incentive — higher prices make supplying more profitable.
Rationing — higher prices ration the good to those willing and able to pay.

When both curves shift

If demand and supply shift together, one of price or quantity is certain and the other depends on which shift is bigger:

Demand	Supply	Price	Quantity
Right	Right	Uncertain	Rises
Left	Left	Uncertain	Falls
Right	Left	Rises	Uncertain
Left	Right	Falls	Uncertain

A multiple-choice option that states both the price and the quantity change for a double shift is usually wrong, unless the question tells you the relative sizes.

Consumer and producer surplus

Consumer surplus is the difference between what consumers would be willing to pay and what they actually pay — the area below the demand curve and above the price. Producer surplus is the difference between the price producers receive and the lowest price they would accept — the area above the supply curve and below the price.

A rise in price shrinks consumer surplus and enlarges producer surplus. The same areas measure the welfare lost to a tax or a price control, which is where this topic meets market failure and government intervention.

Worked example

A market has these schedules. Price $2, $3, $4, $5, $6; quantity demanded 90, 80, 70, 60, 50; quantity supplied 30, 50, 70, 90, 110. Find the equilibrium, then the effect of a maximum price of $3.

Equilibrium is where quantity demanded equals quantity supplied: $4 and 70 units.

A maximum price of $3 is below equilibrium, so it binds. At $3, 80 units are demanded but only 50 supplied: a shortage of 30 units, and 20 fewer units traded than before. The good now has to be rationed some other way — queues, first come first served, or a black market.

Common mistakes

1.Shifting the demand curve when the good's own price changes.
An own-price change is a movement along the curve — a change in quantity demanded, not in demand.
2.Shifting demand for a cost change.
Costs, technology, taxes and subsidies move supply. Incomes, tastes and related goods’ prices move demand.
3.Assuming higher income always raises demand.
For an inferior good it lowers demand. Check whether the question calls the good inferior.
4.Stating both price and quantity after a double shift.
One of them is indeterminate unless the question gives the sizes of the shifts.

Common questions

What is the difference between a change in demand and a change in quantity demanded?

A change in quantity demanded is a movement along the demand curve, caused only by a change in the good’s own price. A change in demand is a shift of the whole curve, caused by anything else.

What happens to price when supply increases?

With demand unchanged, the supply curve shifts right, there is excess supply at the old price, and the price falls to a new equilibrium with a larger quantity traded.

Is demand and supply on 9708 Paper 3 as well?

It is AS content, examined on Paper 1, but A Level questions assume it throughout — market structures, the labour market and exchange rates are all demand and supply applied. Exchange rates guide →