The interaction of demand and supply
Equilibrium
- The market is in equilibrium where demand crosses supply — quantity demanded = quantity supplied.
- This gives the equilibrium price and equilibrium quantity; no pressure to change.
Practice
Market equilibrium is where:
Equilibrium is where the demand and supply curves cross, so the two quantities are equal.
Disequilibrium
- price too low → excess demand (shortage); buyers compete → price pushed up.
- price too high → excess supply; sellers can't sell all → price pushed down.
- Either way the price returns to equilibrium.
Practice
If the price is set too low, there is:
A too-low price means buyers want more than is supplied (shortage); competition pushes the price up.
How shifts change it
| Change | Price | Quantity |
|---|---|---|
| demand rises | up | up |
| demand falls | down | down |
| supply rises | down | up |
| supply falls | up | down |
- The same analysis sets wages (labour market) and exchange rates (currency market).
Practice
If supply rises (shifts right), the equilibrium:
More supply lowers the price and raises the quantity traded.
You've got it
Key idea
- equilibrium: demand = supply → equilibrium price and quantity
- excess demand (low price) pushes price up; excess supply (high price) pushes it down
- demand up → price+quantity up; supply up → price down, quantity up