ECON 101 · MICROECONOMICS
Supply, Demand & Market Equilibrium
Premium Exam Study Guide — A Three-Part Blueprint
This blueprint compresses the most heavily tested material on competitive markets into three
working layers: a definitional matrix for rapid recall, a diagnostic guide to the single most
common exam error, and worked computational problems with fully reasoned solutions.
Notation follows standard introductory convention: P denotes price and Q denotes quantity, with
all relationships stated ceteris paribus.
Part 1 — The Core Matrix
Five load-bearing concepts, each stated as a formal definition and anchored to a concrete
market. Read the middle column for what an examiner expects on a graph or equation; read the
right column for the intuition that makes it stick.
Economic Real-World Application
Mathematical / Graphical Definition
Concept Example
Law of Demand An inverse relationship between a When pump prices spike,
good's own price and its quantity drivers carpool, consolidate
demanded, holding all else constant. trips, and shift toward transit
The demand curve slopes downward; — quantity demanded falls
formally Qd = f(P) with ∂Qd/∂P < 0. even though preferences are
unchanged.
Law of Supply A direct relationship between a good's As wheat prices rise, farmers
own price and its quantity supplied, devote more acreage and
holding all else constant. The supply inputs to wheat for the next
curve slopes upward; formally Qs = season, raising the quantity
g(P) with ∂Qs/∂P > 0. supplied.
Market The price P* at which Qd = Qs, clearing Ride-share surge pricing
Equilibrium the market with neither shortage nor climbs until the number of
surplus. Graphically, the intersection riders requesting trips equals
of the supply and demand curves. the number of drivers willing
to drive at that price.
Price Elasticity of The responsiveness of quantity A 10% airfare increase that
Demand demanded to a price change: Ed = cuts leisure bookings ~25% is
(%ΔQd) ÷ (%ΔP) = (dQ/dP)(P/Q). elastic; a 10% rise in insulin's
Demand is elastic when |Ed| > 1, price that barely moves
inelastic when |Ed| < 1, and unit-elastic purchases is inelastic.
when |Ed| = 1.
ECON 101 · Supply, Demand & Market Equilibrium Page 1
, Economic Real-World Application
Mathematical / Graphical Definition
Concept Example
Deadweight Loss The loss of total surplus (consumer + A per-unit cigarette tax
producer) when output is pushed away shrinks trade below the
from the efficient quantity by a tax, efficient level; the mutually
price control, or market power. It is the beneficial sales that no longer
welfare triangle between the supply occur are the deadweight
and demand curves: DWL = ½ × ΔQ × loss.
ΔP, the per-unit wedge times the lost
output.
Note on ΔQ in the deadweight-loss row: ΔQ is the gap between the efficient quantity and the
lower quantity actually traded once the distortion is imposed; ΔP is the vertical tax or price
wedge separating what buyers pay from what sellers receive.
ECON 101 · Supply, Demand & Market Equilibrium Page 2
Supply, Demand & Market Equilibrium
Premium Exam Study Guide — A Three-Part Blueprint
This blueprint compresses the most heavily tested material on competitive markets into three
working layers: a definitional matrix for rapid recall, a diagnostic guide to the single most
common exam error, and worked computational problems with fully reasoned solutions.
Notation follows standard introductory convention: P denotes price and Q denotes quantity, with
all relationships stated ceteris paribus.
Part 1 — The Core Matrix
Five load-bearing concepts, each stated as a formal definition and anchored to a concrete
market. Read the middle column for what an examiner expects on a graph or equation; read the
right column for the intuition that makes it stick.
Economic Real-World Application
Mathematical / Graphical Definition
Concept Example
Law of Demand An inverse relationship between a When pump prices spike,
good's own price and its quantity drivers carpool, consolidate
demanded, holding all else constant. trips, and shift toward transit
The demand curve slopes downward; — quantity demanded falls
formally Qd = f(P) with ∂Qd/∂P < 0. even though preferences are
unchanged.
Law of Supply A direct relationship between a good's As wheat prices rise, farmers
own price and its quantity supplied, devote more acreage and
holding all else constant. The supply inputs to wheat for the next
curve slopes upward; formally Qs = season, raising the quantity
g(P) with ∂Qs/∂P > 0. supplied.
Market The price P* at which Qd = Qs, clearing Ride-share surge pricing
Equilibrium the market with neither shortage nor climbs until the number of
surplus. Graphically, the intersection riders requesting trips equals
of the supply and demand curves. the number of drivers willing
to drive at that price.
Price Elasticity of The responsiveness of quantity A 10% airfare increase that
Demand demanded to a price change: Ed = cuts leisure bookings ~25% is
(%ΔQd) ÷ (%ΔP) = (dQ/dP)(P/Q). elastic; a 10% rise in insulin's
Demand is elastic when |Ed| > 1, price that barely moves
inelastic when |Ed| < 1, and unit-elastic purchases is inelastic.
when |Ed| = 1.
ECON 101 · Supply, Demand & Market Equilibrium Page 1
, Economic Real-World Application
Mathematical / Graphical Definition
Concept Example
Deadweight Loss The loss of total surplus (consumer + A per-unit cigarette tax
producer) when output is pushed away shrinks trade below the
from the efficient quantity by a tax, efficient level; the mutually
price control, or market power. It is the beneficial sales that no longer
welfare triangle between the supply occur are the deadweight
and demand curves: DWL = ½ × ΔQ × loss.
ΔP, the per-unit wedge times the lost
output.
Note on ΔQ in the deadweight-loss row: ΔQ is the gap between the efficient quantity and the
lower quantity actually traded once the distortion is imposed; ΔP is the vertical tax or price
wedge separating what buyers pay from what sellers receive.
ECON 101 · Supply, Demand & Market Equilibrium Page 2
