Pearson Edexcel · A-Level · Economics B

    Course version: 9EB0 · Version from Sept 2015

    A) Equilibrium price and quantity and how they are determined

    Full specification wording

    Price determination: a) Equilibrium price and quantity and how they are determined

    Equilibrium price and quantity are determined where the market demand curve intersects the market supply curve.

    Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .

    • Point 1 of 5
    • 4 key terms

    Study notes

    From the checked teaching notes for this specification point.

    The idea

    Equilibrium price and quantity are determined where the market demand curve intersects the market supply curve. At this point, the quantity consumers are willing to buy exactly equals the quantity producers are willing to sell, leaving no excess demand or supply. This is the market-clearing price. For example, if the price of coffee is above equilibrium, producers supply more than consumers demand, creating a surplus. Market forces push the price down as sellers reduce prices to clear stock. Conversely, if the price is below equilibrium, a shortage occurs, and consumers bid up the price. This interaction of supply and demand ensures the market naturally gravitates towards the equilibrium point, determining both price and quantity.

    What earns the marks

    • Define equilibrium as the point where quantity demanded equals quantity supplied.
    • Identify the equilibrium price and quantity from a given supply and demand schedule or diagram.
    • Explain the mechanism by which excess supply leads to a downward pressure on price.
    • Explain the mechanism by which excess demand leads to an upward pressure on price.

    Common mistakes and how to put them right

    • Confusing equilibrium with a state where supply and demand curves shift.

      Put it right: Equilibrium is a point on the existing curves, while shifts create a new equilibrium.

    • Stating that a surplus causes demand to increase.

      Put it right: A surplus causes the price to fall, which leads to an extension in quantity demanded, not a shift in the demand curve.

    • Assuming the market is always in equilibrium.

      Put it right: Markets frequently experience temporary disequilibrium due to sudden price changes or external shocks before adjusting.

    Exam tips

    • When asked to find equilibrium on a graph, always look for the exact intersection point and read across to the price axis and down to the quantity axis.
    • Use the terms 'excess demand' and 'excess supply' rather than 'shortage' and 'surplus' to demonstrate precise economic vocabulary.
    • Remember that price acts as a signal and an incentive to both buyers and sellers to restore equilibrium.

    Try the lesson

    The start of the Price determination: a) Equilibrium price and quantity and how they are determined lesson, made from checked teaching notes for this specification point.

    Have a go first

    In a free market, how are the equilibrium price and equilibrium quantity determined?

    Listen

    Equilibrium price and quantity are determined where the market demand curve intersects the market supply curve. At this point, the quantity consumers are willing to buy exactly equals the quantity producers are willing to sell, leaving no excess demand or supply. This is the market-clearing price. For example, if the price of coffee is above equilibrium, producers supply more than consumers demand, creating a surplus. Market forces push the price down as sellers reduce prices to clear stock. Conversely, if the price is below equilibrium, a shortage occurs, and consumers bid up the price. This interaction of supply and demand ensures the market naturally gravitates towards the equilibrium point, determining both price and quantity. A strong answer earns marks for these points. Define equilibrium as the point where quantity demanded equals quantity supplied. Identify the equilibrium price and quantity from a given supply and demand schedule or diagram. Explain the mechanism by which excess supply leads to a downward pressure on price. Explain the mechanism by which excess demand leads to an upward pressure on price. A common slip: Confusing equilibrium with a state where supply and demand curves shift. Instead, equilibrium is a point on the existing curves, while shifts create a new equilibrium. Exam tip: When asked to find equilibrium on a graph, always look for the exact intersection point and read across to the price axis and down to the quantity axis.

    See it

    A top-down flowchart. At the top, a node labelled 'Market demand curve and market supply curve' leads to 'Intersection: quantity demanded equals quantity supplied', which leads to 'Equilibrium price and quantity determined', then to 'Market-clearing price: no excess demand or supply'. Two separate branches feed back into the intersection node. The first branch starts at 'Price above equilibrium', goes to 'Excess supply', then 'Sellers reduce prices to clear stock', then 'Price falls towards equilibrium', and returns to the intersection. The second branch starts at 'Price below equilibrium', goes to 'Excess demand', then 'Consumers bid up the price', then 'Price rises towards equilibrium', and also returns to the intersection.
    Shows how the intersection of market demand and supply sets equilibrium price and quantity, and how excess supply and excess demand push price back towards that equilibrium.

    Key words

    Say what each word means before you turn the card.

    Market equilibrium

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    Market-clearing price

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    Excess supply

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    Excess demand

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    See every definition
    Market equilibrium
    The point where the market demand curve intersects the market supply curve, so the quantity consumers are willing to buy exactly equals the quantity producers are willing to sell.
    Market-clearing price
    The price at equilibrium, at which there is no excess demand or supply because the quantities consumers buy and producers sell are equal.
    Excess supply
    A situation where producers supply more than consumers demand, which pushes the price down as sellers reduce prices to clear stock.
    Excess demand
    A situation where the price is below equilibrium and a shortage occurs, so consumers bid the price up.

    Label the diagram

    Some boxes have lost their names. Pick the right name for each number.

    The diagram again, with 3 boxes numbered instead of named. A top-down flowchart. At the top, a node labelled 'Market demand curve and market supply curve' leads to 'Intersection: quantity demanded equals quantity supplied', which leads to 'Equilibrium price and quantity determined', then to 'Market-clearing price: no excess demand or supply'. Two separate branches feed back into the intersection node. The first branch starts at 'Price above equilibrium', goes to 'Excess supply', then 'Sellers reduce prices to clear stock', then 'Price falls towards equilibrium', and returns to the intersection. The second branch starts at 'Price below equilibrium', goes to 'Excess demand', then 'Consumers bid up the price', then 'Price rises towards equilibrium', and also returns to the intersection.

    • 1Box 1

    • 2Box 2

    • 3Box 3

    0 of 3 labelled

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