Lesson preview · Prices, shortages and surpluses
When markets change
~7 min · Free to read
Chocolate is made from cocoa beans. In March 2024, their price passed 10,000 dollars a tonne on the New York cocoa market for the first time. The price had more than doubled since August 2023. Most cocoa grows in West Africa, and at the time the two biggest cocoa-growing countries were Côte d’Ivoire and Ghana. There, heavy rain, dry heat and plant disease, including one called black pod, cut the harvest.
In the 2023–24 season, the world’s cocoa harvest was about 13% smaller than the year before. Factories that grind the beans processed about 5% less cocoa. So the price went up and the amount bought went down. Something changed on one side of the market, and both numbers moved in ways you can predict.
Key Term
A shift: the whole curve moves
A shift means a whole curve moves, because buyers or sellers want to trade more or less at every price. More moves the curve right. Less moves it left.
- Demand is how much buyers are willing and able to buy at each price. It shifts when something changes for buyers, such as tastes, incomes or the number of buyers.
- Supply is how much sellers are willing and able to offer at each price. It shifts when something changes for sellers, such as costs, weather or technology.
A change in the good’s own price never shifts a curve. It moves buyers and sellers along it.
Key Term
Four shifts, four results
| What changes | Price | Quantity (amount bought and sold) |
|---|---|---|
| Demand rises (shifts right) | up | up |
| Demand falls (shifts left) | down | down |
| Supply rises (shifts right) | down | up |
| Supply falls (shifts left) | up | down |
When demand shifts, price and quantity move the same way. When supply shifts, they move opposite ways.
Imagine a spicy noodle snack goes viral, so demand rises. At the old price, buyers want more packets than the shops have: a shortage. Shops raise the price, and the higher price leads snack makers to produce more. Price and quantity both rise.
When the cocoa harvest shrank, supply fell. At the old price there was a shortage again, so the price rose. But buyers reacted to the higher price by buying less, so the quantity fell.
Demand shifts moved price and quantity the same way; supply shifts moved them opposite ways. So the price alone can’t tell you which curve moved: check whether the quantity went the same way as the price or the opposite way.
Trap · Common Misconception
"The price rose, so demand must have risen"
Not always. In 2022 and 2023, bird flu hit egg farms in the United States and Japan. In 2022 the United States lost more than 43 million egg-laying hens to the disease or to culling (killing birds to stop it spreading). Japan culled 17.7 million birds in the 2022–23 season, more than in any season before. Fewer eggs reached the shops and prices jumped: supply had fallen.
The viral snack’s price rose too, but shops sold more packets: demand had risen.
So check the quantity. Price up and quantity down means supply fell. Price up and quantity up means demand rose.
Tip
Name the shift first
For any news story, ask in this order:
- Who is affected, buyers or sellers? Buyers move demand; sellers move supply.
- Do they want more or less at every price? That’s right or left.
- What happens to price and quantity? Read it from the table.
Worked Example
Here are two made-up headlines. For each one, name the shift, then predict the price and the quantity.
- “New machine halves the cost of making phone cases.”
- “Doctors warn that a popular energy drink harms sleep.”
Practice · 1 / 5
A city is growing fast, and more people want to rent apartments there. Nothing changes on the sellers’ side: landlords’ and builders’ costs stay the same. What happens to the rent (the price of renting) and to the number of apartments rented?
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