Put the buyers' demand curve and the sellers' supply curve on one diagram. Where they cross is the equilibrium.
Three words to know
Equilibrium
Buyers want exactly what sellers offer: nothing left over, nobody goes without.
Surplus (excess supply)
Sellers have more than buyers want: some is left over.
Shortage (excess demand)
Buyers want more than sellers have: some go without.
Animated graph
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The points to remember
- The equilibrium price is the market-clearing price: everything offered is bought.
- Label it Pe and Qe on the axes.
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What happens if the price is set above equilibrium, at €8 a box?
What a surplus is
Surplus
Sellers have more than buyers want. Stock is left over, so sellers cut the price.
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The points to remember
- Price above equilibrium: quantity supplied is greater than quantity demanded.
- The gap is a surplus: the price falls until it is gone, at Pe.
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And if the price is set below equilibrium, at €4 a box?
What a shortage is
Shortage
Buyers want more than sellers have. Shelves empty and queues form, so sellers can raise the price.
Animated graph
Watch the graph build step by step in study mode.
The points to remember
- Price below equilibrium: quantity demanded is greater than quantity supplied.
- The gap is a shortage: the price rises until it is gone, at Pe.
Remember it as: Too much: price drops. Too little: price climbs.
Quick reminder
- Curves: D and S
- Marks: Pe and Qe; at a price P1, Qd and Qs
- Dots with dashed lines to the axes
- No numbers, no title
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No paper has set equilibrium on its own yet, but every demand and supply answer in Paper 2 starts from one. This is the Paper 2 shape: a diagram plus a short explanation, for 4 marks.
The price of a good is set above its equilibrium price.
Using a demand and supply diagram, explain how the market returns to equilibrium.
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How the 4 marks are given
| Marks | What your answer needs |
|---|---|
| 3–4 | A correct diagram and a correct explanation |
| 1–2 | A correct diagram or a correct explanation, not both |
| 3 at most | A diagram with a wrong or missing label |