Graph walkthrough · Micro · Supply and demand

Cheaper chips, cheaper laptops

The price of memory chips, a key input for laptops, falls by half.

QuantityPrice0DSE₀

Step 1 of 3 · Before the price cut

Laptops sell for about 800 dollars and 2 million units ship a month. The horizontal axis is millions of laptops per month. The vertical axis is the price of a laptop. Demand and supply meet at E₀.

The chain in words

  1. Step 1

    Before the price cut

    Laptops sell for about 800 dollars and 2 million units ship a month. The horizontal axis is millions of laptops per month. The vertical axis is the price of a laptop. Demand and supply meet at E₀.

  2. Step 2

    Supply shifts right

    Memory chips are an input. When they get cheaper, every laptop costs less to build, so makers offer more at every price. Supply shifts right. At the old price of 800 dollars, makers ship more than buyers want: a surplus.

  3. Step 3

    Price falls to clear the market

    Makers cut prices to move stock. Lower prices pull in new buyers, a movement along the demand curve. The market settles at E₁: a lower price and more laptops sold.

Takeaway. A rise in supply lowers the price and raises the quantity.

Draw it yourself

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More on the supply and demand graph

Frost hits the coffee cropElectric cars and gasolineIncomes rise, restaurants fill upAvocados: a trend meets a droughtRent control creates a shortageA price floor for milkA sugar tax on sodaA subsidy for solar panelsBuy now, before prices rise

Go deeper

Lesson: The Supply Curve

The walkthrough shows the chain. The lesson explains why each link holds, with worked examples and practice questions that remember what you get wrong.
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