{"id":6941,"date":"2017-08-02T15:53:02","date_gmt":"2017-08-02T15:53:02","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/?post_type=chapter&#038;p=6941"},"modified":"2017-08-03T17:03:38","modified_gmt":"2017-08-03T17:03:38","slug":"markets-supply-and-demand","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/hccs-macroeconomics-3\/chapter\/markets-supply-and-demand\/","title":{"raw":"Supply, Demand and Equilibrium","rendered":"Supply, Demand and Equilibrium"},"content":{"raw":"&nbsp;\r\n<table style=\"width: 808.8px;height: 358px\">\r\n<tbody>\r\n<tr>\r\n<td style=\"width: 456px;vertical-align: top\">\r\n\r\n[caption id=\"attachment_6942\" align=\"aligncenter\" width=\"500\"]<img class=\"wp-image-6942\" style=\"font-size: 16px\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28054648\/DSC05209-300x200.jpg\" alt=\"\" width=\"500\" height=\"333\" \/> Night Market Venice[\/caption]<\/td>\r\n<td style=\"width: 333.8px;vertical-align: top\">\r\n<div class=\"textbox learning-objectives\">\r\n<h3>LEarning Objectives<\/h3>\r\n<ul>\r\n \t<li>Demand<\/li>\r\n \t<li>Supply<\/li>\r\n \t<li>Equilibrium\r\n<ul>\r\n \t<li>Surplus and Shortage<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<\/div>\r\n&nbsp;<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n<table style=\"width: 844.2px\">\r\n<tbody>\r\n<tr>\r\n<td style=\"width: 500px;vertical-align: top\">\r\n<h3><\/h3>\r\n<h3>Prices<\/h3>\r\n<div>\r\n<div class=\"media-body\">\r\n<div id=\"content\">\r\n<p id=\"fs-idp85391488\">When economists talk about prices, they are less interested in making judgments than in gaining a practical <strong>understanding of<\/strong> <strong>what determines prices and why prices change<\/strong>. Consider a price most of us contend with weekly: that of a gallon of gas. Why was the average price of gasoline in the United States $3.71 per gallon in June 2014? Why did the price for gasoline fall sharply to $2.07 per gallon by January 2015? To explain these price movements, economists focus on the <strong>determinants of what gasoline buyers are willing to pay and what gasoline sellers are willing to accept<\/strong>.<\/p>\r\n<p id=\"fs-idm18670544\">This chapter introduces the economic model of demand and supply\u2014one of the most powerful models in all of economics. The discussion here begins by examining how demand and supply determine the price and the quantity sold in markets for goods and services, and how changes in demand and supply lead to changes in prices and quantities.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div><\/td>\r\n<td style=\"width: 327.2px\">\r\n\r\n[caption id=\"attachment_6944\" align=\"aligncenter\" width=\"225\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28061301\/2620785973_0ed7b5212a_z1.jpg\"><img class=\"size-medium wp-image-6944\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28061301\/2620785973_0ed7b5212a_z1-225x300.jpg\" alt=\"\" width=\"225\" height=\"300\" \/><\/a> Gas Prices California June 2008[\/caption]<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<section id=\"fs-idp164241728\">\r\n<p id=\"fs-idm43689872\">First let\u2019s first focus on what economists mean by demand, what they mean by supply, and then how demand and supply interact in a market.<\/p>\r\n\r\n<section id=\"fs-idp164241728\">\r\n<h1>Demand for Goods and Services<\/h1>\r\n<\/section>\r\n<p id=\"fs-idp145515472\">Economists use the term\u00a0<strong>demand<\/strong>\u00a0to refer to the <span style=\"text-decoration: underline\">amount of some good or service consumers are willing and able to purchase at each price<\/span>. Demand is based on the needs and wants of buyers\u2014a consumer may be able to differentiate between a need and a want, but from an economist\u2019s perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay for it, you have no effective demand.<\/p>\r\n<p id=\"fs-idp162371840\">What a buyer pays for a unit of the specific good or service is called\u00a0<strong>price<\/strong>. <span style=\"text-decoration: underline\">The total number of units purchased at that price is called the\u00a0<strong>quantity demanded<\/strong><\/span>. A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this <span style=\"text-decoration: underline\">inverse relationship between price and quantity demanded the\u00a0law of demand<\/span>. The law of demand assumes that <span style=\"text-decoration: underline\">all other variables that affect demand (to be explained in the next module) are held constant<\/span>.<\/p>\r\n<p id=\"fs-idp125928160\">An example from the market for gasoline can be shown in the form of a table or a graph. A table that shows the quantity demanded at each price, such as TAble 1, is called a\u00a0<span style=\"text-decoration: underline\">demand schedule<\/span>. Price in this case is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period (for example, per day or per year) and over some geographic area (like a state or a country). A\u00a0demand curve\u00a0shows the relationship between price and quantity demanded on a graph like Fig. 1, with quantity on the horizontal axis and the price per gallon on the vertical axis. (Note that this is an exception to the normal rule in mathematics that the independent variable (x) goes on the horizontal axis and the dependent variable (y) goes on the vertical. Economics is not math.)<\/p>\r\n<p id=\"fs-idp72633840\">The demand schedule shown by table 1 and the demand curve shown by the graph in Fig. 1\u00a0are two ways of describing the same relationship between price and quantity demanded.<\/p>\r\n\r\n<figure id=\"CNX_Econ_C03_001\" class=\"ui-has-child-figcaption\">\r\n<div class=\"title\">Fig. 1-A Demand Curve for Gasoline<\/div>\r\n<span id=\"fs-idp85064480\"><img src=\"https:\/\/cnx.org\/resources\/0c486886de0b3bdd336bf5c837a97745c076480c\/CNX_Econ_C03_001.jpg\" alt=\"The graph shows a downward-sloping demand curve that represents the law of demand.\" \/><\/span>\r\n\r\n<figcaption>The demand schedule shows that as price rises, quantity demanded decreases, and vice versa. These points are then graphed, and the line connecting them is the demand curve (D). The downward slope of the demand curve again illustrates the law of demand\u2014the inverse relationship between prices and quantity demanded.<\/figcaption><\/figure>\r\n<table id=\"Table_03_01\" summary=\"The table shows the price and quantity demanded of gasoline. The left column shows the price per gallon and the right column shows the quantity demanded in millions. At $1.00 per gallon, the quantity demanded is 800 million gallons. At $1.20, the demand is 700 million gallons. At $1.40, the demand is 600 million. At $1.60, the demand is 550 million gallons. At $1.80, the demand is 500 million gallons. At $2.00, the demand is 460 million gallons. Finally, at $2.20, the demand is 420 million gallons.\"><caption>Table 1-Price and Quantity Demanded of Gasoline<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Price (per gallon)<\/th>\r\n<th scope=\"col\">Quantity Demanded (millions of gallons)<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>$1.00<\/td>\r\n<td>800<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.20<\/td>\r\n<td>700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.40<\/td>\r\n<td>600<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.60<\/td>\r\n<td>550<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.80<\/td>\r\n<td>500<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.00<\/td>\r\n<td>460<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.20<\/td>\r\n<td>420<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p id=\"fs-idp92211968\">Demand curves will appear somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right. So demand curves embody <span style=\"text-decoration: underline\">the law of demand: As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases<\/span>.<\/p>\r\n\r\n<\/section>&nbsp;\r\n<div class=\"textbox shaded\"><section id=\"fs-idp164241728\">\r\n<div id=\"fs-idm9151600\" class=\"note economics clearup ui-has-child-title\"><header>\r\n<div class=\"title\">IS DEMAND THE SAME AS QUANTITY DEMANDED?<\/div>\r\n<\/header><section>\r\n<p id=\"fs-idp18974320\">In economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve.<\/p>\r\n\r\n<\/section><\/div>\r\n<\/section><\/div>\r\n<h1>Supply of Goods and Services<\/h1>\r\n<section id=\"fs-idm37573200\">\r\n<p id=\"fs-idp102318432\">When economists talk about\u00a0<strong>supply<\/strong>, they mean <span style=\"text-decoration: underline\">the amount of some good or service a producer is willing to supply at each price<\/span>. <span style=\"text-decoration: underline\">Price is what the producer receives for selling one unit of a\u00a0<span class=\"no-emphasis\">good<\/span>\u00a0or\u00a0<span class=\"no-emphasis\">service<\/span><\/span>. A rise in price almost always leads to an increase in the\u00a0quantity supplied\u00a0of that good or service, while a fall in price will decrease the quantity supplied. When the price of gasoline rises, for example, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves; drill for more oil; invest in more pipelines and oil tankers to bring the oil to plants where it can be refined into gasoline; build new oil refineries; purchase additional pipelines and trucks to ship the gasoline to gas stations; and open more gas stations or keep existing gas stations open longer hours. <span style=\"text-decoration: underline\">Economists call this positive relationship between price and quantity supplied\u2014that a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied\u2014the<strong>\u00a0law of supply<\/strong><\/span>. The law of supply assumes that all other variables that affect supply (to be explained in the next module) are held constant.<\/p>\r\n\r\n<div class=\"textbox shaded\"><header>\r\n<div class=\"title\">IS SUPPLY THE SAME AS QUANTITY SUPPLIED?<\/div>\r\n<\/header><section>\r\n<p id=\"fs-idp40820560\">In economic terminology, supply is not the same as quantity supplied. When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices, a relationship that can be illustrated with a supply curve or a supply schedule. When economists refer to quantity supplied, they mean only a certain point on the supply curve, or one quantity on the supply schedule. In short, supply refers to the curve and quantity supplied refers to the (specific) point on the curve.<\/p>\r\n\r\n<\/section><\/div>\r\n<div id=\"fs-idp68971696\" class=\"note economics clearup ui-has-child-title\"><\/div>\r\n<p id=\"fs-idm47957216\">Fig.2 illustrates the law of supply, again using the market for gasoline as an example. Like demand, supply can be illustrated using a table or a graph. A\u00a0supply schedule\u00a0is a table, like Table 2, that shows the quantity supplied at a range of different prices. Again, price is measured in dollars per gallon of gasoline and quantity supplied is measured in millions of gallons. A\u00a0supply curve\u00a0is a graphic illustration of the relationship between price, shown on the vertical axis, and quantity, shown on the horizontal axis. The supply schedule and the supply curve are just two different ways of showing the same information. Notice that the horizontal and vertical axes on the graph for the supply curve are the same as for the demand curve.<\/p>\r\n\r\n<figure id=\"CNX_Econ_C03_002\" class=\"ui-has-child-figcaption\">\r\n<div class=\"title\">Fig.2-A Supply Curve for Gasoline<\/div>\r\n<span id=\"fs-idm10089632\"><img src=\"https:\/\/cnx.org\/resources\/e8f9cf50a95ece06ae4353c617b79024162a0c4e\/CNX_Econ_C03_002.jpg\" alt=\"The graph shows an upward-sloping supply curve that represents the law of supply.\" \/><\/span>\r\n\r\n<figcaption>The supply schedule is the table that shows quantity supplied of gasoline at each price. As price rises, quantity supplied also increases, and vice versa. The supply curve (S) is created by graphing the points from the supply schedule and then connecting them. The upward slope of the supply curve illustrates the law of supply\u2014that a higher price leads to a higher quantity supplied, and vice versa.<\/figcaption><\/figure>\r\n<table id=\"Table_03_02\" summary=\"The table shows shows the price per gallon of gasoline and the quantity supplied in millions of gallons. When the price per gallon is $1.00, the quantity supplied is 500 million gallons. When the price is $1.20, the quantity supplied is 550 million gallons. When the price is $1.40, the quantity supplied is 600 million gallons. When the price is $1.60, the quantity supplied is 640 million gallons. At $1.80, the quantity supplied is 680 million gallons. At $2.00, the quantity supplied is 700 million gallons. Finally, at $2.20, the quantity supplied is 720 million.\"><caption>Table 2 - Price and Supply of Gasoline<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Price (per gallon)<\/th>\r\n<th scope=\"col\">Quantity Supplied (millions of gallons)<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>$1.00<\/td>\r\n<td>500<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.20<\/td>\r\n<td>550<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.40<\/td>\r\n<td>600<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.60<\/td>\r\n<td>640<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.80<\/td>\r\n<td>680<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.00<\/td>\r\n<td>700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.20<\/td>\r\n<td>720<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p id=\"fs-idp19386416\">The shape of supply curves will vary somewhat according to the product: steeper, flatter, straighter, or curved. Nearly all supply curves, however, share a basic similarity: they slope up from left to right and illustrate the law of supply: as the price rises, say, from $1.00 per gallon to $2.20 per gallon, the quantity supplied increases from 500 gallons to 720 gallons. Conversely, as the price falls, the quantity supplied decreases.<\/p>\r\n\r\n<\/section><section id=\"fs-idm393056\">\r\n<h1>Equilibrium\u2014Where Demand and Supply Intersect<\/h1>\r\n<p id=\"fs-idm110531152\">Because the graphs for demand and supply curves both have price on the vertical axis and quantity on the horizontal axis, the demand curve and supply curve for a particular good or service can appear on the same graph. Together, demand and supply determine the price and the quantity that will be bought and sold in a market.<\/p>\r\nFig.3 illustrates the interaction of demand and supply in the market for gasoline. The demand curve (D) is identical to the one in Fig.1. The supply curve (S) is identical to the one in Fig.2. Table 3\u00a0contains the same information in tabular form.\r\n<figure id=\"CNX_Econ_C03_003\" class=\"ui-has-child-figcaption\">\r\n<div class=\"title\">Fig. 3-Demand and Supply for Gasoline<\/div>\r\n<span id=\"fs-idp39318880\"><img src=\"https:\/\/cnx.org\/resources\/63f47bb804ff4c50a60f967b7b29acdfd5fd450a\/CNX_Econ_C03_003.jpg\" alt=\"The graph shows the demand and supply for gasoline where the two curves intersect at the point of equilibrium.\" \/><\/span>\r\n\r\n<figcaption>The demand curve (D) and the supply curve (S) intersect at the equilibrium point E, with a price of $1.40 and a quantity of 600. The equilibrium is the only price where quantity demanded is equal to quantity supplied. At a price above equilibrium like $1.80, quantity supplied exceeds the quantity demanded, so there is excess supply. At a price below equilibrium such as $1.20, quantity demanded exceeds quantity supplied, so there is excess demand.<\/figcaption><\/figure>\r\n<table id=\"Table_03_03\" summary=\"The table shows shows the price, the quantity demanded, and the quantity supplied of gasoline. It combines the information from Table 1.1 and Table 1.2. When the price per gallon is $1.00, the quantity demanded is 800 million gallons and the quantity supplied is 500 million. When the price is $1.20, the quantity demanded is 700 million gallons and the quantity supplied is 550 million gallons. At $1.40, the demand is 600 million and the quantity supplied is 600 million gallons. At $1.60, the demand is 550 million gallons and the quantity supplied is 640 million gallons. At $1.80, the demand is 500 million gallons and the quantity supplied is 680 million gallons. At $2.00, the demand is 460 million gallons and the quantity supplied is 700 million gallons. Finally, at $2.20, the demand is 420 million gallons and the quantity supplied is 720 million.\"><caption>Table 3 - Price, Quantity Demanded, and Quantity Supplied<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Price (per gallon)<\/th>\r\n<th scope=\"col\">Quantity demanded (millions of gallons)<\/th>\r\n<th scope=\"col\">Quantity supplied (millions of gallons)<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>$1.00<\/td>\r\n<td>800<\/td>\r\n<td>500<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.20<\/td>\r\n<td>700<\/td>\r\n<td>550<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>$1.40<\/strong><\/td>\r\n<td><strong>600<\/strong><\/td>\r\n<td><strong>600<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.60<\/td>\r\n<td>550<\/td>\r\n<td>640<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$1.80<\/td>\r\n<td>500<\/td>\r\n<td>680<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.00<\/td>\r\n<td>460<\/td>\r\n<td>700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>$2.20<\/td>\r\n<td>420<\/td>\r\n<td>720<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p id=\"fs-idp5911872\">Remember this: When two lines on a diagram cross, this intersection usually means something. The point where the supply curve (S) and the demand curve (D) cross, designated by point E in Fig. 3, is called the\u00a0equilibrium. <span style=\"text-decoration: underline\">The\u00a0equilibrium price\u00a0is the only price where the plans of consumers and the plans of producers agree\u2014that is, where the amount of the product consumers want to buy (quantity demanded) is equal to the amount producers want to sell (quantity supplied). This common quantity is called the\u00a0equilibrium quantity.<\/span> At any other price, the quantity demanded does not equal the quantity supplied, so the market is not in equilibrium at that price.<\/p>\r\n<p id=\"fs-idp49221616\">In Fig. 3, the equilibrium price is $1.40 per gallon of gasoline and the equilibrium quantity is 600 million gallons. If you had only the demand and supply schedules, and not the graph, you could find the equilibrium by looking for the price level on the tables where the quantity demanded and the quantity supplied are equal.<\/p>\r\n<p id=\"fs-idm121129440\">The word \u201cequilibrium\u201d means \u201cbalance.\u201d If a market is at its equilibrium price and quantity, then it has <span style=\"text-decoration: underline\">no reason to move away from that point<\/span>. However, if a market is not at equilibrium, then economic pressures arise to move the market toward the equilibrium price and the equilibrium quantity.<\/p>\r\nhttps:\/\/youtu.be\/W5nHpAn6FvQ\r\n<p id=\"fs-idm170650816\">Imagine, for example, that the price of a gallon of gasoline was above the equilibrium price\u2014that is, instead of $1.40 per gallon, the price is $1.80 per gallon. This above-equilibrium price is illustrated by the dashed horizontal line at the price of $1.80 in Fig. 3. At this higher price, the quantity demanded drops from 600 to 500. This decline in quantity reflects how consumers react to the higher price by finding ways to use less gasoline.<\/p>\r\n<p id=\"fs-idp418176\">Moreover, at this higher price of $1.80, the quantity of gasoline supplied rises from the 600 to 680, as the higher price makes it more profitable for gasoline producers to expand their output. Now, consider how quantity demanded and quantity supplied are related at this above-equilibrium price. Quantity demanded has fallen to 500 gallons, while quantity supplied has risen to 680 gallons. In fact, <span style=\"text-decoration: underline\">at any above-equilibrium price, the quantity supplied exceeds the quantity demanded<\/span>. We call this an\u00a0<strong>excess supply\u00a0or a\u00a0surplus<\/strong>.<\/p>\r\n<p id=\"fs-idm95010144\">With a surplus, gasoline accumulates at gas stations, in tanker trucks, in pipelines, and at oil refineries. This accumulation puts pressure on gasoline sellers. If a surplus remains unsold, those firms involved in making and selling gasoline are not receiving enough cash to pay their workers and to cover their expenses. In this situation, some producers and sellers will want to cut prices, because it is better to sell at a lower price than not to sell at all. Once some sellers start cutting prices, others will follow to avoid losing sales. These price reductions in turn will stimulate a higher quantity demanded. So, if the price is above the equilibrium level, incentives built into the structure of demand and supply will <span style=\"text-decoration: underline\">create pressures for the price to fall toward the equilibrium.<\/span><\/p>\r\n<p id=\"fs-idm100059504\">Now suppose that the price is below its equilibrium level at $1.20 per gallon, as the dashed horizontal line at this price in Fig. 3\u00a0shows. At this lower price, the quantity demanded increases from 600 to 700 as drivers take longer trips, spend more minutes warming up the car in the driveway in wintertime, stop sharing rides to work, and buy larger cars that get fewer miles to the gallon. However, the below-equilibrium price reduces gasoline producers\u2019 incentives to produce and sell gasoline, and the quantity supplied falls from 600 to 550.<\/p>\r\n<p id=\"fs-idm91120096\"><span style=\"text-decoration: underline\">When the price is below equilibrium, there is\u00a0excess demand, or a\u00a0shortage<\/span>\u2014that is, at the given price the quantity demanded, which has been stimulated by the lower price, now exceeds the quantity supplied, which had been depressed by the lower price. In this situation, eager gasoline buyers mob the gas stations, only to find many stations running short of fuel. Oil companies and gas stations recognize that they have an opportunity to make higher profits by selling what gasoline they have at a higher price. As a result, <span style=\"text-decoration: underline\">the price rises toward the equilibrium level<\/span>.<\/p>\r\n\r\n<\/section><section id=\"fs-idm19184208\" class=\"summary\">\r\n<h1>Key Concepts and Summary<\/h1>\r\n<p id=\"fs-idp57667456\">A demand schedule is a table that shows the quantity demanded at different prices in the market. A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded.<\/p>\r\n<p id=\"fs-idm94846624\">A supply schedule is a table that shows the quantity supplied at different prices in the market. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied.<\/p>\r\n<p id=\"fs-idm70608144\">The equilibrium price and equilibrium quantity occur where the supply and demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level.<\/p>\r\n\r\n<\/section>","rendered":"<p>&nbsp;<\/p>\n<table style=\"width: 808.8px;height: 358px\">\n<tbody>\n<tr>\n<td style=\"width: 456px;vertical-align: top\">\n<div id=\"attachment_6942\" style=\"width: 510px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6942\" class=\"wp-image-6942\" style=\"font-size: 16px\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28054648\/DSC05209-300x200.jpg\" alt=\"\" width=\"500\" height=\"333\" \/><\/p>\n<p id=\"caption-attachment-6942\" class=\"wp-caption-text\">Night Market Venice<\/p>\n<\/div>\n<\/td>\n<td style=\"width: 333.8px;vertical-align: top\">\n<div class=\"textbox learning-objectives\">\n<h3>LEarning Objectives<\/h3>\n<ul>\n<li>Demand<\/li>\n<li>Supply<\/li>\n<li>Equilibrium\n<ul>\n<li>Surplus and Shortage<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/div>\n<p>&nbsp;<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<table style=\"width: 844.2px\">\n<tbody>\n<tr>\n<td style=\"width: 500px;vertical-align: top\">\n<h3><\/h3>\n<h3>Prices<\/h3>\n<div>\n<div class=\"media-body\">\n<div id=\"content\">\n<p id=\"fs-idp85391488\">When economists talk about prices, they are less interested in making judgments than in gaining a practical <strong>understanding of<\/strong> <strong>what determines prices and why prices change<\/strong>. Consider a price most of us contend with weekly: that of a gallon of gas. Why was the average price of gasoline in the United States $3.71 per gallon in June 2014? Why did the price for gasoline fall sharply to $2.07 per gallon by January 2015? To explain these price movements, economists focus on the <strong>determinants of what gasoline buyers are willing to pay and what gasoline sellers are willing to accept<\/strong>.<\/p>\n<p id=\"fs-idm18670544\">This chapter introduces the economic model of demand and supply\u2014one of the most powerful models in all of economics. The discussion here begins by examining how demand and supply determine the price and the quantity sold in markets for goods and services, and how changes in demand and supply lead to changes in prices and quantities.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/td>\n<td style=\"width: 327.2px\">\n<div id=\"attachment_6944\" style=\"width: 235px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28061301\/2620785973_0ed7b5212a_z1.jpg\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6944\" class=\"size-medium wp-image-6944\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28061301\/2620785973_0ed7b5212a_z1-225x300.jpg\" alt=\"\" width=\"225\" height=\"300\" \/><\/a><\/p>\n<p id=\"caption-attachment-6944\" class=\"wp-caption-text\">Gas Prices California June 2008<\/p>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<section id=\"fs-idp164241728\">\n<p id=\"fs-idm43689872\">First let\u2019s first focus on what economists mean by demand, what they mean by supply, and then how demand and supply interact in a market.<\/p>\n<section id=\"fs-idp164241728\">\n<h1>Demand for Goods and Services<\/h1>\n<\/section>\n<p id=\"fs-idp145515472\">Economists use the term\u00a0<strong>demand<\/strong>\u00a0to refer to the <span style=\"text-decoration: underline\">amount of some good or service consumers are willing and able to purchase at each price<\/span>. Demand is based on the needs and wants of buyers\u2014a consumer may be able to differentiate between a need and a want, but from an economist\u2019s perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay for it, you have no effective demand.<\/p>\n<p id=\"fs-idp162371840\">What a buyer pays for a unit of the specific good or service is called\u00a0<strong>price<\/strong>. <span style=\"text-decoration: underline\">The total number of units purchased at that price is called the\u00a0<strong>quantity demanded<\/strong><\/span>. A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this <span style=\"text-decoration: underline\">inverse relationship between price and quantity demanded the\u00a0law of demand<\/span>. The law of demand assumes that <span style=\"text-decoration: underline\">all other variables that affect demand (to be explained in the next module) are held constant<\/span>.<\/p>\n<p id=\"fs-idp125928160\">An example from the market for gasoline can be shown in the form of a table or a graph. A table that shows the quantity demanded at each price, such as TAble 1, is called a\u00a0<span style=\"text-decoration: underline\">demand schedule<\/span>. Price in this case is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period (for example, per day or per year) and over some geographic area (like a state or a country). A\u00a0demand curve\u00a0shows the relationship between price and quantity demanded on a graph like Fig. 1, with quantity on the horizontal axis and the price per gallon on the vertical axis. (Note that this is an exception to the normal rule in mathematics that the independent variable (x) goes on the horizontal axis and the dependent variable (y) goes on the vertical. Economics is not math.)<\/p>\n<p id=\"fs-idp72633840\">The demand schedule shown by table 1 and the demand curve shown by the graph in Fig. 1\u00a0are two ways of describing the same relationship between price and quantity demanded.<\/p>\n<figure id=\"CNX_Econ_C03_001\" class=\"ui-has-child-figcaption\">\n<div class=\"title\">Fig. 1-A Demand Curve for Gasoline<\/div>\n<p><span id=\"fs-idp85064480\"><img decoding=\"async\" src=\"https:\/\/cnx.org\/resources\/0c486886de0b3bdd336bf5c837a97745c076480c\/CNX_Econ_C03_001.jpg\" alt=\"The graph shows a downward-sloping demand curve that represents the law of demand.\" \/><\/span><figcaption>The demand schedule shows that as price rises, quantity demanded decreases, and vice versa. These points are then graphed, and the line connecting them is the demand curve (D). The downward slope of the demand curve again illustrates the law of demand\u2014the inverse relationship between prices and quantity demanded.<\/figcaption><\/figure>\n<table id=\"Table_03_01\" summary=\"The table shows the price and quantity demanded of gasoline. The left column shows the price per gallon and the right column shows the quantity demanded in millions. At $1.00 per gallon, the quantity demanded is 800 million gallons. At $1.20, the demand is 700 million gallons. At $1.40, the demand is 600 million. At $1.60, the demand is 550 million gallons. At $1.80, the demand is 500 million gallons. At $2.00, the demand is 460 million gallons. Finally, at $2.20, the demand is 420 million gallons.\">\n<caption>Table 1-Price and Quantity Demanded of Gasoline<\/caption>\n<thead>\n<tr>\n<th scope=\"col\">Price (per gallon)<\/th>\n<th scope=\"col\">Quantity Demanded (millions of gallons)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>$1.00<\/td>\n<td>800<\/td>\n<\/tr>\n<tr>\n<td>$1.20<\/td>\n<td>700<\/td>\n<\/tr>\n<tr>\n<td>$1.40<\/td>\n<td>600<\/td>\n<\/tr>\n<tr>\n<td>$1.60<\/td>\n<td>550<\/td>\n<\/tr>\n<tr>\n<td>$1.80<\/td>\n<td>500<\/td>\n<\/tr>\n<tr>\n<td>$2.00<\/td>\n<td>460<\/td>\n<\/tr>\n<tr>\n<td>$2.20<\/td>\n<td>420<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p id=\"fs-idp92211968\">Demand curves will appear somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right. So demand curves embody <span style=\"text-decoration: underline\">the law of demand: As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases<\/span>.<\/p>\n<\/section>\n<p>&nbsp;<\/p>\n<div class=\"textbox shaded\">\n<section id=\"fs-idp164241728\">\n<div id=\"fs-idm9151600\" class=\"note economics clearup ui-has-child-title\">\n<header>\n<div class=\"title\">IS DEMAND THE SAME AS QUANTITY DEMANDED?<\/div>\n<\/header>\n<section>\n<p id=\"fs-idp18974320\">In economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve.<\/p>\n<\/section>\n<\/div>\n<\/section>\n<\/div>\n<h1>Supply of Goods and Services<\/h1>\n<section id=\"fs-idm37573200\">\n<p id=\"fs-idp102318432\">When economists talk about\u00a0<strong>supply<\/strong>, they mean <span style=\"text-decoration: underline\">the amount of some good or service a producer is willing to supply at each price<\/span>. <span style=\"text-decoration: underline\">Price is what the producer receives for selling one unit of a\u00a0<span class=\"no-emphasis\">good<\/span>\u00a0or\u00a0<span class=\"no-emphasis\">service<\/span><\/span>. A rise in price almost always leads to an increase in the\u00a0quantity supplied\u00a0of that good or service, while a fall in price will decrease the quantity supplied. When the price of gasoline rises, for example, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves; drill for more oil; invest in more pipelines and oil tankers to bring the oil to plants where it can be refined into gasoline; build new oil refineries; purchase additional pipelines and trucks to ship the gasoline to gas stations; and open more gas stations or keep existing gas stations open longer hours. <span style=\"text-decoration: underline\">Economists call this positive relationship between price and quantity supplied\u2014that a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied\u2014the<strong>\u00a0law of supply<\/strong><\/span>. The law of supply assumes that all other variables that affect supply (to be explained in the next module) are held constant.<\/p>\n<div class=\"textbox shaded\">\n<header>\n<div class=\"title\">IS SUPPLY THE SAME AS QUANTITY SUPPLIED?<\/div>\n<\/header>\n<section>\n<p id=\"fs-idp40820560\">In economic terminology, supply is not the same as quantity supplied. When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices, a relationship that can be illustrated with a supply curve or a supply schedule. When economists refer to quantity supplied, they mean only a certain point on the supply curve, or one quantity on the supply schedule. In short, supply refers to the curve and quantity supplied refers to the (specific) point on the curve.<\/p>\n<\/section>\n<\/div>\n<div id=\"fs-idp68971696\" class=\"note economics clearup ui-has-child-title\"><\/div>\n<p id=\"fs-idm47957216\">Fig.2 illustrates the law of supply, again using the market for gasoline as an example. Like demand, supply can be illustrated using a table or a graph. A\u00a0supply schedule\u00a0is a table, like Table 2, that shows the quantity supplied at a range of different prices. Again, price is measured in dollars per gallon of gasoline and quantity supplied is measured in millions of gallons. A\u00a0supply curve\u00a0is a graphic illustration of the relationship between price, shown on the vertical axis, and quantity, shown on the horizontal axis. The supply schedule and the supply curve are just two different ways of showing the same information. Notice that the horizontal and vertical axes on the graph for the supply curve are the same as for the demand curve.<\/p>\n<figure id=\"CNX_Econ_C03_002\" class=\"ui-has-child-figcaption\">\n<div class=\"title\">Fig.2-A Supply Curve for Gasoline<\/div>\n<p><span id=\"fs-idm10089632\"><img decoding=\"async\" src=\"https:\/\/cnx.org\/resources\/e8f9cf50a95ece06ae4353c617b79024162a0c4e\/CNX_Econ_C03_002.jpg\" alt=\"The graph shows an upward-sloping supply curve that represents the law of supply.\" \/><\/span><figcaption>The supply schedule is the table that shows quantity supplied of gasoline at each price. As price rises, quantity supplied also increases, and vice versa. The supply curve (S) is created by graphing the points from the supply schedule and then connecting them. The upward slope of the supply curve illustrates the law of supply\u2014that a higher price leads to a higher quantity supplied, and vice versa.<\/figcaption><\/figure>\n<table id=\"Table_03_02\" summary=\"The table shows shows the price per gallon of gasoline and the quantity supplied in millions of gallons. When the price per gallon is $1.00, the quantity supplied is 500 million gallons. When the price is $1.20, the quantity supplied is 550 million gallons. When the price is $1.40, the quantity supplied is 600 million gallons. When the price is $1.60, the quantity supplied is 640 million gallons. At $1.80, the quantity supplied is 680 million gallons. At $2.00, the quantity supplied is 700 million gallons. Finally, at $2.20, the quantity supplied is 720 million.\">\n<caption>Table 2 &#8211; Price and Supply of Gasoline<\/caption>\n<thead>\n<tr>\n<th scope=\"col\">Price (per gallon)<\/th>\n<th scope=\"col\">Quantity Supplied (millions of gallons)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>$1.00<\/td>\n<td>500<\/td>\n<\/tr>\n<tr>\n<td>$1.20<\/td>\n<td>550<\/td>\n<\/tr>\n<tr>\n<td>$1.40<\/td>\n<td>600<\/td>\n<\/tr>\n<tr>\n<td>$1.60<\/td>\n<td>640<\/td>\n<\/tr>\n<tr>\n<td>$1.80<\/td>\n<td>680<\/td>\n<\/tr>\n<tr>\n<td>$2.00<\/td>\n<td>700<\/td>\n<\/tr>\n<tr>\n<td>$2.20<\/td>\n<td>720<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p id=\"fs-idp19386416\">The shape of supply curves will vary somewhat according to the product: steeper, flatter, straighter, or curved. Nearly all supply curves, however, share a basic similarity: they slope up from left to right and illustrate the law of supply: as the price rises, say, from $1.00 per gallon to $2.20 per gallon, the quantity supplied increases from 500 gallons to 720 gallons. Conversely, as the price falls, the quantity supplied decreases.<\/p>\n<\/section>\n<section id=\"fs-idm393056\">\n<h1>Equilibrium\u2014Where Demand and Supply Intersect<\/h1>\n<p id=\"fs-idm110531152\">Because the graphs for demand and supply curves both have price on the vertical axis and quantity on the horizontal axis, the demand curve and supply curve for a particular good or service can appear on the same graph. Together, demand and supply determine the price and the quantity that will be bought and sold in a market.<\/p>\n<p>Fig.3 illustrates the interaction of demand and supply in the market for gasoline. The demand curve (D) is identical to the one in Fig.1. The supply curve (S) is identical to the one in Fig.2. Table 3\u00a0contains the same information in tabular form.<\/p>\n<figure id=\"CNX_Econ_C03_003\" class=\"ui-has-child-figcaption\">\n<div class=\"title\">Fig. 3-Demand and Supply for Gasoline<\/div>\n<p><span id=\"fs-idp39318880\"><img decoding=\"async\" src=\"https:\/\/cnx.org\/resources\/63f47bb804ff4c50a60f967b7b29acdfd5fd450a\/CNX_Econ_C03_003.jpg\" alt=\"The graph shows the demand and supply for gasoline where the two curves intersect at the point of equilibrium.\" \/><\/span><figcaption>The demand curve (D) and the supply curve (S) intersect at the equilibrium point E, with a price of $1.40 and a quantity of 600. The equilibrium is the only price where quantity demanded is equal to quantity supplied. At a price above equilibrium like $1.80, quantity supplied exceeds the quantity demanded, so there is excess supply. At a price below equilibrium such as $1.20, quantity demanded exceeds quantity supplied, so there is excess demand.<\/figcaption><\/figure>\n<table id=\"Table_03_03\" summary=\"The table shows shows the price, the quantity demanded, and the quantity supplied of gasoline. It combines the information from Table 1.1 and Table 1.2. When the price per gallon is $1.00, the quantity demanded is 800 million gallons and the quantity supplied is 500 million. When the price is $1.20, the quantity demanded is 700 million gallons and the quantity supplied is 550 million gallons. At $1.40, the demand is 600 million and the quantity supplied is 600 million gallons. At $1.60, the demand is 550 million gallons and the quantity supplied is 640 million gallons. At $1.80, the demand is 500 million gallons and the quantity supplied is 680 million gallons. At $2.00, the demand is 460 million gallons and the quantity supplied is 700 million gallons. Finally, at $2.20, the demand is 420 million gallons and the quantity supplied is 720 million.\">\n<caption>Table 3 &#8211; Price, Quantity Demanded, and Quantity Supplied<\/caption>\n<thead>\n<tr>\n<th scope=\"col\">Price (per gallon)<\/th>\n<th scope=\"col\">Quantity demanded (millions of gallons)<\/th>\n<th scope=\"col\">Quantity supplied (millions of gallons)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>$1.00<\/td>\n<td>800<\/td>\n<td>500<\/td>\n<\/tr>\n<tr>\n<td>$1.20<\/td>\n<td>700<\/td>\n<td>550<\/td>\n<\/tr>\n<tr>\n<td><strong>$1.40<\/strong><\/td>\n<td><strong>600<\/strong><\/td>\n<td><strong>600<\/strong><\/td>\n<\/tr>\n<tr>\n<td>$1.60<\/td>\n<td>550<\/td>\n<td>640<\/td>\n<\/tr>\n<tr>\n<td>$1.80<\/td>\n<td>500<\/td>\n<td>680<\/td>\n<\/tr>\n<tr>\n<td>$2.00<\/td>\n<td>460<\/td>\n<td>700<\/td>\n<\/tr>\n<tr>\n<td>$2.20<\/td>\n<td>420<\/td>\n<td>720<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p id=\"fs-idp5911872\">Remember this: When two lines on a diagram cross, this intersection usually means something. The point where the supply curve (S) and the demand curve (D) cross, designated by point E in Fig. 3, is called the\u00a0equilibrium. <span style=\"text-decoration: underline\">The\u00a0equilibrium price\u00a0is the only price where the plans of consumers and the plans of producers agree\u2014that is, where the amount of the product consumers want to buy (quantity demanded) is equal to the amount producers want to sell (quantity supplied). This common quantity is called the\u00a0equilibrium quantity.<\/span> At any other price, the quantity demanded does not equal the quantity supplied, so the market is not in equilibrium at that price.<\/p>\n<p id=\"fs-idp49221616\">In Fig. 3, the equilibrium price is $1.40 per gallon of gasoline and the equilibrium quantity is 600 million gallons. If you had only the demand and supply schedules, and not the graph, you could find the equilibrium by looking for the price level on the tables where the quantity demanded and the quantity supplied are equal.<\/p>\n<p id=\"fs-idm121129440\">The word \u201cequilibrium\u201d means \u201cbalance.\u201d If a market is at its equilibrium price and quantity, then it has <span style=\"text-decoration: underline\">no reason to move away from that point<\/span>. However, if a market is not at equilibrium, then economic pressures arise to move the market toward the equilibrium price and the equilibrium quantity.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Episode 14: Market Equilibrium\" width=\"500\" height=\"375\" src=\"https:\/\/www.youtube.com\/embed\/W5nHpAn6FvQ?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p id=\"fs-idm170650816\">Imagine, for example, that the price of a gallon of gasoline was above the equilibrium price\u2014that is, instead of $1.40 per gallon, the price is $1.80 per gallon. This above-equilibrium price is illustrated by the dashed horizontal line at the price of $1.80 in Fig. 3. At this higher price, the quantity demanded drops from 600 to 500. This decline in quantity reflects how consumers react to the higher price by finding ways to use less gasoline.<\/p>\n<p id=\"fs-idp418176\">Moreover, at this higher price of $1.80, the quantity of gasoline supplied rises from the 600 to 680, as the higher price makes it more profitable for gasoline producers to expand their output. Now, consider how quantity demanded and quantity supplied are related at this above-equilibrium price. Quantity demanded has fallen to 500 gallons, while quantity supplied has risen to 680 gallons. In fact, <span style=\"text-decoration: underline\">at any above-equilibrium price, the quantity supplied exceeds the quantity demanded<\/span>. We call this an\u00a0<strong>excess supply\u00a0or a\u00a0surplus<\/strong>.<\/p>\n<p id=\"fs-idm95010144\">With a surplus, gasoline accumulates at gas stations, in tanker trucks, in pipelines, and at oil refineries. This accumulation puts pressure on gasoline sellers. If a surplus remains unsold, those firms involved in making and selling gasoline are not receiving enough cash to pay their workers and to cover their expenses. In this situation, some producers and sellers will want to cut prices, because it is better to sell at a lower price than not to sell at all. Once some sellers start cutting prices, others will follow to avoid losing sales. These price reductions in turn will stimulate a higher quantity demanded. So, if the price is above the equilibrium level, incentives built into the structure of demand and supply will <span style=\"text-decoration: underline\">create pressures for the price to fall toward the equilibrium.<\/span><\/p>\n<p id=\"fs-idm100059504\">Now suppose that the price is below its equilibrium level at $1.20 per gallon, as the dashed horizontal line at this price in Fig. 3\u00a0shows. At this lower price, the quantity demanded increases from 600 to 700 as drivers take longer trips, spend more minutes warming up the car in the driveway in wintertime, stop sharing rides to work, and buy larger cars that get fewer miles to the gallon. However, the below-equilibrium price reduces gasoline producers\u2019 incentives to produce and sell gasoline, and the quantity supplied falls from 600 to 550.<\/p>\n<p id=\"fs-idm91120096\"><span style=\"text-decoration: underline\">When the price is below equilibrium, there is\u00a0excess demand, or a\u00a0shortage<\/span>\u2014that is, at the given price the quantity demanded, which has been stimulated by the lower price, now exceeds the quantity supplied, which had been depressed by the lower price. In this situation, eager gasoline buyers mob the gas stations, only to find many stations running short of fuel. Oil companies and gas stations recognize that they have an opportunity to make higher profits by selling what gasoline they have at a higher price. As a result, <span style=\"text-decoration: underline\">the price rises toward the equilibrium level<\/span>.<\/p>\n<\/section>\n<section id=\"fs-idm19184208\" class=\"summary\">\n<h1>Key Concepts and Summary<\/h1>\n<p id=\"fs-idp57667456\">A demand schedule is a table that shows the quantity demanded at different prices in the market. A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded.<\/p>\n<p id=\"fs-idm94846624\">A supply schedule is a table that shows the quantity supplied at different prices in the market. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied.<\/p>\n<p id=\"fs-idm70608144\">The equilibrium price and equilibrium quantity occur where the supply and demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level.<\/p>\n<\/section>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-6941\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Market Photo. <strong>Authored by<\/strong>: S.Haci. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28054648\/DSC05209.jpg\">https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28054648\/DSC05209.jpg<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Gas Prices picture. <strong>Authored by<\/strong>: diaper. <strong>Provided by<\/strong>: Flickr. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/diaper\/2620785973\/in\/photolist-deqF1-qBBfaj-5HBTwQ-6G8nRq-4TUqyU-bEbhYR-dgJtpY-o6kU5Q-7F1WPt-29HByk-4ScB78-q2mVMF-EJiqS-btxfyU-o6kSj5-7F1Vi6-8893qn-nNXw78-7WnTy-egH7CT-9SZEmn-iQntw2-4G349f-5x7KMD-4ZAdn4-4QnBJe-7rn4XZ-bu467o-9pYimF-5tJw9-8P4Dkd-ad3m4R-4V3Ubt-qmTMj9-bstikh-7rqZVq-7rn4PT-7rn4nF-acsqrB-4QygCA-qExVT5-6Dndrc-9hFUmn-iZGRie-notE9-dVf5vK-o6rZ9Z-4sH81-38AFus-dQCAxq\">https:\/\/www.flickr.com\/photos\/diaper\/2620785973\/in\/photolist-deqF1-qBBfaj-5HBTwQ-6G8nRq-4TUqyU-bEbhYR-dgJtpY-o6kU5Q-7F1WPt-29HByk-4ScB78-q2mVMF-EJiqS-btxfyU-o6kSj5-7F1Vi6-8893qn-nNXw78-7WnTy-egH7CT-9SZEmn-iQntw2-4G349f-5x7KMD-4ZAdn4-4QnBJe-7rn4XZ-bu467o-9pYimF-5tJw9-8P4Dkd-ad3m4R-4V3Ubt-qmTMj9-bstikh-7rqZVq-7rn4PT-7rn4nF-acsqrB-4QygCA-qExVT5-6Dndrc-9hFUmn-iZGRie-notE9-dVf5vK-o6rZ9Z-4sH81-38AFus-dQCAxq<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Principles of Economics - Chapter 3. <strong>Authored by<\/strong>: Openstax. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/cnx.org\/contents\/aWGdK2jw@11.346:D3bzsNhU@8\/Demand-Supply-and-Equilibrium-\">https:\/\/cnx.org\/contents\/aWGdK2jw@11.346:D3bzsNhU@8\/Demand-Supply-and-Equilibrium-<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":18767,"menu_order":2,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Gas Prices picture\",\"author\":\"diaper\",\"organization\":\"Flickr\",\"url\":\"https:\/\/www.flickr.com\/photos\/diaper\/2620785973\/in\/photolist-deqF1-qBBfaj-5HBTwQ-6G8nRq-4TUqyU-bEbhYR-dgJtpY-o6kU5Q-7F1WPt-29HByk-4ScB78-q2mVMF-EJiqS-btxfyU-o6kSj5-7F1Vi6-8893qn-nNXw78-7WnTy-egH7CT-9SZEmn-iQntw2-4G349f-5x7KMD-4ZAdn4-4QnBJe-7rn4XZ-bu467o-9pYimF-5tJw9-8P4Dkd-ad3m4R-4V3Ubt-qmTMj9-bstikh-7rqZVq-7rn4PT-7rn4nF-acsqrB-4QygCA-qExVT5-6Dndrc-9hFUmn-iZGRie-notE9-dVf5vK-o6rZ9Z-4sH81-38AFus-dQCAxq\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"original\",\"description\":\"Market Photo\",\"author\":\"S.Haci\",\"organization\":\"\",\"url\":\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/1681\/2017\/07\/28054648\/DSC05209.jpg\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Principles of Economics - 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