Demand and Supply - Price Equilibrium

In the market, both the demand and the supply curves have to meet at a certain point where both parties (consumers and producers) are satisfied with the price and are willing to buy and sell the products. This is called the price equilibrium.



In the graph above, it shows that both lines meet at a certain point of intersection at 0.35 pounds and a quantity of 250. This means that the producers are willing to produce 250 units of goods at the price of 0.35 pounds each while the buyers are willing to purchase 250 unites of goods at the price of 0.35 pounds each. The equilibrium shows that both parties are in an agreement. One is willing to sell a certain amount at a certain price while the other is willing to buy a that amount at a the same price.
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If the price demanded by the supplier was 0.40 pounds each, the price will not be at equilibrium and the buyers may not buy the supplier's goods due to the high opportunity cost. The price would be hire than the demand. In this case, it is called an excess supply and in order to bring the price back to equilibrium, they will have to negotiate a lower price.



On the other hand, if the buyer insists on buying 300 units but only wants to pay 0.25 pounds, the price will once again be out of equilibrium and the producers may refuse to produce and sell. According to the graph, the supplier will only sell their goods at 0.25 pounds per unit for only 150 units, not 350 units. (in short, the consumer may be asking for too much for a cheap price) This is called excess demand. To resolve this, the price has to rise.

Works Cited
Tutor2u. "Gcse Economics - Demand and Supply - Price Equilibrium." GCSE Economics. Tutor2u, n.d. Web. 11 Dec. 2012. <http://www.tutor2u.net/economics/gcse/revision_notes/demand_supply_price_equilibrium.htm>.