3. MARKET EQUILIBRIUM Now that you understand demand and supply we can now combine them to explain equilibrium in the market for a particular good or service. 3.1. Excess supply and demand At any other price there is disequilibrium in the form of excess supply and excess demand. When there is disequilibrium, market forces are set in motion to move the market towards equilibrium. The demand and supply of potatoes in the market on a particular day Definition: The market is in equilibrium when the quantity demanded is equal to the quantity supplied. The price at which this occurs is called equilibrium Column 1: shows the various prices for potatoes on a given day (in Rands per kilogram). Column 2: shows the quantity demanded at various prices. Column 3: shows the quantity supplied at various prices. Column 4: shows the difference between quantity demanded and supplied and the last Column 5: shows the direction of the pressure put on the price of the product. When the quantity demanded is greater than the quantity supplied there is excess demand – market shortage When the quantity supplied is greater than the quantity demanded there is an excess supply – market surplus. To illustrate equilibrium we also make use of a schedule (Demand and Supply schedule) and we make use of a graph (Demand and supply graph) Price per potatoes (R/kg) Quantity demanded (R/kg) 2 3 4 5 6 7 400 350 300 250 200 150 Quantity supplied (R/kg) 0 100 150 250 300 350 Graph for supply and demand for potatoes on a given day QUANTITY DAYS 0 1 2 3 4 5 6 7 50 100 150 200 250 300 350 400 S S D D E Price of potatoes (R/kg) Quantity demanded (R/kg) Quantity supplied (R/kg) Excess supply / Excess demand Pressure on Price 2 3 4 5 6 7 400 350 300 250 200 150 0 100 150 250 300 350 400 excess demand 250 excess demand 150 excess demand Equilibrium 100 excess supply 200 excess supply Upward Upward Upward None Downward Downward 61

3.MARKET EQUILIBRIUM The market is in equilibrium when …...equilibrium in the market for a particular good or service. 3.1. Excess supply and demand At any other price there is disequilibrium

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3. MARKET EQUILIBRIUM

Now that you understand demand and supply we can now combine them to explain equilibrium in the market for a particular good or service.

3.1. Excess supply and demand

At any other price there is disequilibrium in the form of excess supply and excess demand. When there is disequilibrium, market forces are set in motion to move the market towards equilibrium.

The demand and supply of potatoes in the market on a particular day

Definition: The market is in equilibrium when the quantity demanded is equal to the quantity supplied. The price at which this occurs is called equilibrium

Column 1: shows the various prices for potatoes on a given day (in Rands per kilogram).Column 2: shows the quantity demanded at various prices.Column 3: shows the quantity supplied at various prices.Column 4: shows the difference between quantity demanded and supplied and the last Column 5: shows the direction of the pressure put on the price of the product.

When the quantity demanded is greater than the quantity supplied there is excess demand – market shortageWhen the quantity supplied is greater than the quantity demanded there is an excess supply – market surplus.

To illustrate equilibrium we also make use of a schedule (Demand and Supply schedule) and we make use of a graph (Demand and supply graph)

Price per potatoes

(R/kg)

Quantitydemanded

(R/kg)

234567

400350300250200150

Quantitysupplied(R/kg)

0100150250300350

Graph for supply and demand for potatoes on a given day

QUANTITY

DAY