1.2.3
The market
The interaction of supply and demand
¥ Supply and demand can be shown on one diagram
¥ Market equilibrium is that point at which
demand is equal to supply i.e. where the supply
and demand curve cross
¥ This is called the equilibrium point or equilibrium
price
¥ This is known as the market clearing price as all
products will be sold at this price
¤ all buyers can get the exact amount that they
want to buy at this price and all sellers provide
exactly the amount that they want to sell at
this price
¤ therefore, there is nothing left over i.e. the
market has cleared
¥ Any change in demand or supply will lead to a new
equilibrium price
At a price of P quantity demanded (qd) is equal to
quantity supplied (qs). All products are sold and no
products are left over i.e. the market has cleared.
At this price all products that have been offered for sale
by suppliers have been bought by buyers and all supply
has had an equal demand.
S
Price
P
D
Q
Quantity
The market
The interaction of supply and demand
¥ Supply and demand can be shown on one diagram
¥ Market equilibrium is that point at which
demand is equal to supply i.e. where the supply
and demand curve cross
¥ This is called the equilibrium point or equilibrium
price
¥ This is known as the market clearing price as all
products will be sold at this price
¤ all buyers can get the exact amount that they
want to buy at this price and all sellers provide
exactly the amount that they want to sell at
this price
¤ therefore, there is nothing left over i.e. the
market has cleared
¥ Any change in demand or supply will lead to a new
equilibrium price
At a price of P quantity demanded (qd) is equal to
quantity supplied (qs). All products are sold and no
products are left over i.e. the market has cleared.
At this price all products that have been offered for sale
by suppliers have been bought by buyers and all supply
has had an equal demand.
S
Price
P
D
Q
Quantity
