Price Mechanism and its Functions / Demand and Supply Analysis and its Applications
H2 Economics - syllabus 9570, 2026
Explain how changes in demand and supply move prices, quantities, wages and revenue, with the diagrams JC exams expect.
- What demand and supply mean
Demand is what buyers are willing and able to buy; supply is what sellers are willing and able to sell.
- Market demand and supply
Add up quantities at each price, not the prices.
- A shift or a movement?
A change in the good's own price moves along the curve; anything else shifts it.
- What shifts demand?
Income, tastes, related goods, population and expectations shift demand.
- What shifts supply?
Costs, technology, the number of sellers and taxes or subsidies shift supply.
- How shortages and surpluses change the price
A shortage pushes the price up and a surplus pushes it down, until the market clears.
- When one curve shifts
Shift one curve, find the shortage or surplus at the old price, then show how the price adjusts.
- When both curves shift
When both curves shift, one outcome is certain and the other depends on which shift is bigger.
- How prices allocate resources
Prices signal, give incentives and ration, and together they move resources to where they are wanted.
- Consumer expenditure and producer revenue
Spending and revenue both equal price times quantity sold.
- Wages and employment
In a labour market, the wage is the price, employers demand labour and workers supply it.
- Consumer and producer surplus
Consumer surplus is what buyers gain from paying less than they would; producer surplus is what sellers gain.
- Changes in consumer and producer surplus
When a curve shifts, compare the surplus areas before and after.
- Model essay (a): why a nurse shortage lasts
A top 10-mark answer, written in about 20 minutes, shows the labour market on a diagram and explains why demand runs ahead of a slow supply response.
- Model essay (b): is higher pay the best fix?
A top 15-mark answer, written in about 30 minutes, weighs higher pay against raising supply and cutting demand, and judges by speed, cost and the root cause.
- Case study practice: the price of a cup of kopi
A whole H2 case study: 30 marks, about 75 minutes in the exam. Answer every part, then compare with the suggested answers.
What you will be able to do
I can explain how prices signal, give incentives and ration scarce resources in a free market.
Syllabus 9570, 2.1.1(a). Price Mechanism and its Functions: How the price mechanism allocates scarce resources in the free market through signalling, incentive and rationing functions
Taught in How prices allocate resources, Model essay (b): is higher pay the best fix?, Case study practice: the price of a cup of kopi
I can explain that market demand adds up the demand of every buyer.
Syllabus 9570, 2.1.2(a). Demand and Supply Analysis and its Applications: Market demand as a summation of individual demand
Taught in What demand and supply mean, Market demand and supply
I can explain that market supply adds up the supply of every seller.
Syllabus 9570, 2.1.2(b). Demand and Supply Analysis and its Applications: Market supply as a summation of individual supply
Taught in What demand and supply mean, Market demand and supply
I can show that a change in a good's own price moves along its demand or supply curve.
Syllabus 9570, 2.1.2(c). Demand and Supply Analysis and its Applications: Changes in price of the good/service itself cause a movement along the demand/supply curve
Taught in A shift or a movement?
I can show how non-price factors shift a demand or supply curve and name those factors.
Syllabus 9570, 2.1.2(d). Demand and Supply Analysis and its Applications: Changes in non-price determinants and how they cause shifts in the demand/supply curve
Taught in What shifts demand?, What shifts supply?
I can find the equilibrium price and quantity where demand meets supply.
Syllabus 9570, 2.1.2(e). Demand and Supply Analysis and its Applications: The equilibrium market price and quantity are determined by the interaction of demand and supply
Taught in How shortages and surpluses change the price, Wages and employment, Model essay (a): why a nurse shortage lasts, Case study practice: the price of a cup of kopi
I can work out how shifts in demand or supply change price, quantity, spending, revenue, consumer surplus and producer surplus.
Syllabus 9570, 2.1.2(f). Demand and Supply Analysis and its Applications: Changes in demand and supply can affect equilibrium price and quantity, consumer expenditure, producer revenue, consumer surplus and producer surplus
Taught in When one curve shifts, When both curves shift, Consumer expenditure and producer revenue, Wages and employment, Consumer and producer surplus, Changes in consumer and producer surplus, Model essay (a): why a nurse shortage lasts, Model essay (b): is higher pay the best fix?, Case study practice: the price of a cup of kopi
Original teaching notes