Supply and demand examples: everyday UK cases

Supply and demand examples

These are hypothetical examples, not reports of particular price changes. Each prediction assumes a competitive market with downward-sloping demand, upward-sloping supply and, unless noted, the other curve unchanged. Price adjustment also takes time. The same idea is sometimes called offer and demand: 'offer' is another word for supply.

A high-street coffee shop is a useful starting point. Suppose a new office block opens across the road and more workers want a mid-morning coffee at each listed price. That is a rise in demand. If the shop cannot instantly add machines and staff, the simple model predicts a higher price and a higher quantity sold once the market has time to adjust.

Now imagine a storm, or an unusually wet British summer, damages part of the local tomato harvest. Growers have fewer tomatoes to offer at each price, so supply falls. The model predicts a higher price and a lower quantity sold, which is why a poor growing season can show up as dearer supermarket tomatoes even if nothing has changed about how much people like them.

A different change starts with producers. If a manufacturing improvement lowers the cost of making laptops, firms can offer more machines at each price. Supply rises. The model predicts a lower price and a higher quantity sold.

Demand can also fall. After a mild autumn, fewer people are interested in buying a new winter coat at each price. Supply has not changed in this story. The model predicts a lower price and a lower quantity sold.

Two further everyday cases use the same model. When British strawberry season peaks in June, more punnets are available at each price, so supply rises; the usual prediction is a lower price and a higher quantity sold. And when a popular band announces a single arena date, demand for tickets rises sharply. In the short run the number of seats is almost fixed, so supply can increase only a little. The model still predicts a higher price, but the quantity sold may barely change until more dates or a larger venue can be added.

The four cases in the table, and in the diagram that follows, are the cleanest illustrations of the four basic shifts. The strawberry and ticket examples follow the same logic, with the ticket market showing what happens when supply cannot expand much in the short run.

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The supply and demand model is a relationship, not one quantity

The supply and demand model organises those examples as two relationships, not as a single observed quantity. Demand is a relationship between price and quantity demanded; supply is a relationship between price and quantity supplied. In the usual introductory model, a higher price reduces the quantity buyers want and increases the quantity sellers offer, other things equal.

Equilibrium is the price at which those quantities match in the model. If buyers want more than sellers offer at a given price, there is a shortage at that price. If sellers offer more than buyers want, there is a surplus. This is a way of organising the choices, not a claim that every real market adjusts instantly.

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Worked example: a coffee stall's afternoon market

Imagine a small market where the quantities below describe cups per afternoon. The numbers are invented to make the relationship visible, with the recipe, opening hours and other conditions held fixed.

At £2, buyers want 120 cups while sellers offer 60. Some willing buyers cannot get a cup at that price. At £4, sellers offer 120 while buyers want 60, leaving unsold capacity or stock. At £3, the planned quantities match at 90 cups. That is equilibrium in this simplified schedule.

A busier street changes the relationship

Now imagine a new office opens nearby. More people want coffee at each listed price. That is a demand shift, not merely buyers reacting to a higher coffee price. If supply is unchanged, the model predicts a higher equilibrium price and quantity.

By contrast, a rise from £2 to £3 with everything else fixed moves along the existing relationships. A rise in milk costs is a different change again: sellers may offer less at each price, shifting supply. Keeping these stories separate helps prevent circular explanations such as ‘demand increased because the price increased’.

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Misconception: the model predicts one outcome without assumptions

If both curves shift, the direction of one outcome may be uncertain. For example, more nearby workers and more expensive milk both put upward pressure on price in this model, but they push quantity in opposite directions. The relative size of those changes matters.

Time matters too. A stall can change its price faster than it can install another machine. Capacity, substitutes, market power and fixed contracts can change how the real adjustment works. The model is most useful when you name those constraints and distinguish a short-run prediction from a longer-run response.

When you are ready, try today's question below. Explain a new case in your own words and the tutor will help you find the gaps.