What is Supply and Demand? BBA Economics Made Simple

The big idea in one sentence

Prices go up when more people want a thing than there is of it, and prices go down when there is more of it than people want.

Demand: what buyers do

Law of demand: when price goes up, quantity demanded goes down. Petrol at Rs 250 per litre? You drive less. At Rs 180? You go on a road trip.

Supply: what sellers do

Law of supply: when price goes up, sellers want to sell more. If mangoes are selling at Rs 600/kg, every farmer rushes to harvest.

Equilibrium price

The one price where quantity supplied equals quantity demanded. The market naturally moves toward it. If price is too high, surplus → sellers cut prices. Too low, shortage → buyers bid prices up.

What shifts the curves

Demand shifts right (more demand at every price) when:

• Income rises
• The product becomes trendy
• Substitutes get expensive (chai goes up → demand for coffee rises)

Supply shifts right when:

• Input costs fall
• New technology lowers production cost
• More producers enter the market

Real Pakistani examples

• Petrol prices: global crude up → supply curve shifts left → equilibrium price rises.
• Wheat: good monsoon → bumper crop → supply right → atta cheaper.
• iPhone in Pakistan: import duties high → supply left → equilibrium price way above international.
• Ride hailing: more drivers join Careem → supply right → fares drop.

Practice problem

Demand: Qd = 100 - 2P. Supply: Qs = 20 + 2P. Find equilibrium.

Answer: Set Qd = Qs → 100 - 2P = 20 + 2P → 4P = 80 → P = 20. Plug back: Q = 60.

What to remember for the exam

Draw the graph. Label both axes (Price on Y, Quantity on X). Always show the shift direction with an arrow. Examiners give marks for clarity, not complicated language.