AOF
Business Economics
Unit 2, Lesson 6
Supply and Demand and Market Equilibrium
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Supply and demand interact through price
• Supply meets demand in the marketplace for goods
and services.
• Buyers and sellers interact, which moves these two
forces into balance.
• Price equilibrium is the point where 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
What happens when the consumer and producer cannot agree
upon a price?
Many factors impact price equilibrium
Factors that change the
equilibrium between
supply and demand are
reflected in the price of
the good:
• Competition
• Input Costs
• Technology
When new technology makes production cheaper,
more is produced and the prices go down.
Supply and demand equilibrium = efficient markets
•
•
•
When buyers and sellers reach an equilibrium price,
the market operates most efficiently.
Companies continue to offer the goods and services
at this price.
Consumers continue to buy the goods and services
at this price.