Equilibrium is where demand equals supply
The equilibrium price is the price at which the quantity demanded equals the quantity supplied. On a diagram it is the point where the demand and supply curves cross. At that price there is no tendency for the price to change — the market clears, with no shortage and no surplus. The quantity bought and sold at that price is the equilibrium quantity.
Off equilibrium: surplus or shortage
If the price is set above equilibrium, quantity supplied exceeds quantity demanded — this is excess supply (a surplus). If the price is set below equilibrium, quantity demanded exceeds quantity supplied — this is excess demand (a shortage). These are states of disequilibrium: the market is not clearing.
Price mechanism restores equilibrium
In a free market, disequilibrium does not last. A surplus pushes the price down (sellers cut prices to clear stock), which contracts supply and extends demand until they are equal. A shortage pushes the price up (buyers bid prices up), which contracts demand and extends supply until they are equal. This self-correcting role of price is the price mechanism, which rations scarce goods and signals to producers what to make.
Shifts create a new equilibrium
When a condition of demand (income, tastes, price of related goods) or a condition of supply (costs, technology, taxes) changes, the relevant curve shifts and the market moves to a new equilibrium with a new price and quantity. For example, a rise in demand shifts the demand curve right, creating a temporary shortage at the old price, so price rises until a new, higher equilibrium is reached.
Drawn from real examiner reports.
Maximum vs minimum price
A maximum price (a price ceiling) is set below equilibrium and causes a shortage (excess demand). A minimum price (a price floor) is set above equilibrium and causes a surplus (excess supply). Mixing these up — or drawing the line on the wrong side of equilibrium — loses marks. To bite, a maximum price must sit below the equilibrium price.
In November 2022 Paper 22 (Structured) the general comments noted a number of candidates confused a minimum with a maximum price, and in June 2023 Paper 21 Q1(e) many shifted a curve to create a new, lower equilibrium instead of drawing a maximum price line below the original equilibrium.
Label axes, curves and equilibria
A demand-and-supply diagram only earns full marks when the axes are labelled (price on the vertical axis, quantity on the horizontal), the demand and supply curves are correctly identified, and the original and new equilibrium points are clearly shown. Otherwise strong economics can score poorly because of careless labelling.
June 2023 Paper 23 Q1(e) and Paper 22 Q1(e): examiners reported that, although the economics was often sound, candidates mislabelled the axes, confused the demand and supply curves, and did not clearly indicate the original and new equilibriums.
Describe vs analyse a diagram
Describing a shift is not analysing it. "The curve moves right" only states what is drawn. To analyse, explain why the curve shifts and trace the chain to the new equilibrium — excess demand or supply at the old price, then price adjusting to clear the market.
Movement along vs shift
A change in a good's own price is a movement along the curve (extension or contraction), not a shift. Only a change in a condition of demand or supply shifts the whole curve and creates a new equilibrium. Drawing a shift for an own-price change (or vice versa) is a common and costly slip.
Shift effects on price and quantity
Get the direction of the equilibrium change right. Demand rises: price up, quantity up. Demand falls: both down. Supply rises: price down, quantity up. Supply falls: price up, quantity down. After a demand shift price and quantity move the same way; after a supply shift they move opposite ways.
Draw means draw, not explain
If the command word is draw, marks are for a fully labelled diagram only — a long explanation wastes time needed for the 6- and 8-mark parts. On analyse or discuss, a diagram alone is not enough: say why the curve shifts and trace it to the new equilibrium.
Trace the chain to a new equilibrium
To reach a new equilibrium, spell the chain: the curve shifts -> a temporary shortage or surplus at the old price -> price adjusts -> supply and demand extend/contract -> a new equilibrium price and quantity. Each link is a mark.
Find equilibrium where Qd = Qs
To find equilibrium in a table, look for the price where quantity demanded equals quantity supplied — not the middle row and not the largest number. Above that price there is a surplus (price falls); below it a shortage (price rises).
In a market, the equilibrium price is the price at which the quantity demanded equals the quantity supplied. On a demand-and-supply diagram it is the point where the two curves cross. At this price the market clears: every buyer willing to pay that price finds a seller, and every seller willing to sell at that price finds a buyer. The quantity traded is the equilibrium quantity.
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