Introduction

After you have worked through this section of the learning unit, you should be able to use demand and supply curves to identify and describe:

  • market equilibrium
  • excess supply or surplus
  • adjustment process if an excess supply exists
  • excess demand or shortage
  • adjustment process if an excess demand exists

The equilibrium price is the only price that can persist in the long run. It is the price where the quantity that is voluntarily supplied and the quantity that is voluntarily demanded are equal.

The market demand curve represents the plans of the buyers, while the supply curve represents the plans of the suppliers.

  • Can you see where market equilibrium occurs on the graph?
  • Can you see how it is represented?

Market equilibrium occurs at a price of R4. It is represented by the intersection of the demand and supply curves at point E. This intersection tells you that at a price of R4, the quantity demanded = quantity supplied = 3 000.

In this market, there is only one equilibrium position (also referred to as the market clearing position).