gcse economics - demand and supply - price equilibrium

Price equilibrium is found where supply and demand are equal. This is the point where both sellers and buyers are happy with the price and quantity.

EXAMPLE 1

In the example above equilibrium price is £0.35 and 250 mars bars would be demanded at this price.

- If price was £0.40 demand would be less than supply and the market wouldn’t be in equilibrium

- If the price was £0.20, demand would be greater than supply and the market wouldn’t be in equilibrium

WHEN PRICE IS NOT AT EQUILIBRIUM

EXCESS SUPPLY

In the first example

EQUILIBRIUM is at £0.35 SUPPLY = DEMAND

However at £0.40 it is not at equilibrium SUPPLY (300) is greater than DEMAND (200)

Therefore we have EXCESS SUPPLY. Price needs to FALL

EXCESS DEMAND

In the first example

EQUILIBRIUM is at £0.35 SUPPLY = DEMAND

However at £0.25 it is not at equilibrium SUPPLY (150) is less than DEMAND (350)

Therefore we have EXCESS DEMAND. Price needs to INCREASE

ACTION

A Try to draw a supply and demand diagram showing equilibrium price and quantity
B Do the same for excess supply and excess demand.
C Using housing as an example try to explain excess supply and demand in your own words

These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email

 

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