Picture the doughnut shop in your neighborhood. The owner can charge whatever she wants. How many doughnuts she sells each week depends on the price.
Two observations from her last two months of pricing experiments:
- When she charged $4 per doughnut, she sold about 30 doughnuts a week.
- When she cut the price to $2 per doughnut, she sold about 70 doughnuts a week.
Connect those two observations with a line and you have her market's demand curve. Each point on it answers one question: at this price, how many doughnuts get bought?
demand for doughnuts in your neighborhood
At $4, the shop sells 30 doughnuts a week.
At $2, it sells 70 doughnuts.
Hover (or tap) anywhere on the line to read the curve at any other price.
Comprehension · 01 of 03
Suppose the doughnut shop cuts the price further, from $2 to $1. What does the demand curve predict will happen to the number of doughnuts sold per week?
Defined on: the demand curve just above.Same logic on the other side. Picture an Uber driver in your city, deciding whether to log on tonight.
The going rate for a ride affects whether she bothers. Across the city, multiply that decision by every driver. Two snapshots from a typical week:
- At $10 per ride, about 20 drivers per hour are logged on and willing to drive.
- When surge pricing pushed the rate to $30 per ride, about 100 drivers per hour were on.
That is the city's supply curve. It slopes upward because, when the going rate rises, more drivers find the work worth their time.
supply of Uber rides per hour in your city
At $10/ride, about 20 drivers are on.
At $30/ride, about 100 drivers are on.
Hover (or tap) anywhere on the line to read the curve at any other rate.
Comprehension · 02 of 03
A heavy storm pushes the going Uber rate from $20 to $25. What does the supply curve predict happens to the number of drivers logged on per hour?
Defined on: the supply curve just above.Equilibrium is not the right price or the fair price. It is the price at which the market clears.— from Markets and Coordination
Two worked examples before you touch the controls. Same shape, different markets.
doughnut market
Equilibrium: $3 per doughnut, 50 doughnuts per week.
uber rides market
Equilibrium: $20 per ride, 60 rides per hour.
Notice both charts use the same shape: demand sloping down, supply sloping up, the curves meeting at a single point. The units differ (doughnuts and dollars per doughnut on one; ride-hours and dollars per ride on the other), but the geometry is the same.
Below, the same picture becomes interactive. You can pick a price other than the equilibrium and watch what goes wrong.
Drag the dashed line. The colored band shows the gap between what sellers want to sell and what buyers want to buy.
doughnut market · interactive
On touch, tap the chart anywhere to set the price at that height. Arrow keys also work when the chart is focused.
Comprehension · 03 of 03
The doughnut market lab opens with the price line above the equilibrium at $4.50. The readout shows buyers want 20 doughnuts, sellers offer 80, and a surplus of 60 doughnuts. What does that 60-doughnut gap represent?
Visible directly in the lab readouts above.When something changes in a market, ask: what changed, who's affected, in which direction, and what happens to the equilibrium.— the four-step move the simulator drills
Pick a scenario to start.
the market, before and after
06 · your run
0 / 7
work through the sections above to score
Three comprehension questions and the four scenarios in the simulator each count for one point.