Economics » Demand and Supply » Demand, Supply, and Equilibrium in Markets for Goods and Services

# Key Concepts and Summary

## Key Concepts and Summary

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.

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.

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.

## Glossary

### demand curve

a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis

### demand schedule

a table that shows a range of prices for a certain good or service and the quantity demanded at each price

### demand

the relationship between price and the quantity demanded of a certain good or service

### equilibrium price

the price where quantity demanded is equal to quantity supplied

### equilibrium quantity

the quantity at which quantity demanded and quantity supplied are equal for a certain price level

### equilibrium

the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

### excess demand

at the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage

### excess supply

at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus

### law of demand

the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant

### law of supply

the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant

### price

what a buyer pays for a unit of the specific good or service

### quantity demanded

the total number of units of a good or service consumers are willing to purchase at a given price

### quantity supplied

the total number of units of a good or service producers are willing to sell at a given price

### shortage

at the existing price, the quantity demanded exceeds the quantity supplied; also called excess demand

### supply curve

a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis

### supply schedule

a table that shows a range of prices for a good or service and the quantity supplied at each price

### supply

the relationship between price and the quantity supplied of a certain good or service

### surplus

at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply

## Review Questions

• What determines the level of prices in a market?
• What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?
• Will demand curves have the same exact shape in all markets? If not, how will they differ?
• Will supply curves have the same shape in all markets? If not, how will they differ?
• What is the relationship between quantity demanded and quantity supplied at equilibrium? What is the relationship when there is a shortage? What is the relationship when there is a surplus?
• How can you locate the equilibrium point on a demand and supply graph?
• If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why?
• When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.
• What is the difference between the demand and the quantity demanded of a product, say milk? Explain in words and show the difference on a graph with a demand curve for milk.
• What is the difference between the supply and the quantity supplied of a product, say milk? Explain in words and show the difference on a graph with the supply curve for milk.

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