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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