Unit 2, Lesson 6

Supply and Demand and Market Equilibrium

AOFBusiness Economics

Supply and demand interact through price

• Supply meets demand in the marketplace for goods and services

• Interaction between buyers and sellers moves these two forces into balance

• Price equilibrium is the point at which supply and demand meet

Why is there constant tension between supply and demand?

Price equilibrium determines supply and demand

Surpluses and shortages are forms of supply and demand disequilibrium

Many factors impact price equilibrium

Supply and demand equilibrium = efficient markets

• When buyers and sellers reach an equilibrium price, the market operates most efficiently

• Companies will continue to offer the goods and services at this price

• Consumers will continue to buy the goods and services at this price