Market equilibrium
At $1.80 a gallon, sellers offer 680 million gallons but buyers want only 500 million, so 180 million gallons pile up unsold.
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Where the two curves cross
Demand and supply use the same axes, so they fit on one graph. Put them together and they cross at one point, marked E. OpenStax calls it the equilibrium. At that price the amount buyers want to buy equals the amount sellers want to sell, and this common amount is the equilibrium quantity. For gasoline the equilibrium price is $1.40 a gallon and the equilibrium quantity is 600 million gallons.
| Price | Demand | Supply | Result |
|---|---|---|---|
| $1.00 | 800 | 500 | 300 short |
| $1.20 | 700 | 550 | 150 short |
| $1.40 | 600 | 600 | Balanced |
| $1.60 | 550 | 640 | 90 over |
| $1.80 | 500 | 680 | 180 over |
| $2.00 | 460 | 700 | 240 over |
| $2.20 | 420 | 720 | 300 over |
The word equilibrium means balance. A market at its equilibrium has no reason to move: no buyer is left wanting gasoline at that price, and no seller is left holding gasoline he would like to sell. Every other price leaves one side unsatisfied, and that is what pushes the price.
A price that is too high
Set the price line to $1.80. Buyers cut back to 500 million gallons, while sellers, encouraged by the higher price, offer 680 million. The difference, 680 − 500 = 180 million gallons, is an excess supply, also called a surplus. Gasoline piles up at filling stations, in tanker trucks and in pipelines. Sellers who are not selling enough to pay their workers start cutting prices, because selling at a lower price beats not selling at all. Once some cut, others follow, and the lower price draws more buyers. The price falls towards $1.40.
A price that is too low
Now try $1.20. Drivers want 700 million gallons: they take longer trips and share fewer rides. Producers offer only 550 million. The gap of 150 million gallons is an excess demand, or shortage. Eager buyers crowd the filling stations and some find the tanks empty. Sellers see that they could sell what they have at a higher price, so the price rises, and it keeps rising until the gap closes at $1.40.
Finding equilibrium without a graph
You do not need the picture. With only the two schedules, look for the price at which quantity demanded equals quantity supplied. If the curves are written as equations, set them equal. Suppose demand is Qd = 160 − 20P and supply is Qs = 20P − 40. Then 160 − 20P = 20P − 40, so 200 = 40P and P = 5. Put that back into either equation: Q = 160 − 100 = 60. The model's readout does exactly this calculation every time you move something.
| Equilibrium | The price at which quantity demanded equals quantity supplied |
| Surplus (excess supply) | Price above equilibrium: supplied > demanded. Price tends to fall. |
| Shortage (excess demand) | Price below equilibrium: demanded > supplied. Price tends to rise. |
- What is the equilibrium price of gasoline in Table 3.3, in dollars?
- What is the surplus at $2.00, in million gallons?
- What is the shortage at $1.00, in million gallons?
- At a price above equilibrium there is…
- a surplus, and the price tends to fall
- a shortage, and the price tends to rise
- nothing, the market is balanced
- At $1.20 a gallon, what do you expect at filling stations?
- Queues and empty tanks
- Unsold fuel piling up
- Nothing changes
- Demand Qd = 160 − 20P, supply Qs = 20P − 40. Equilibrium price?
- And the equilibrium quantity?
- With the same equations, what is the shortage at a price of 4?
- Who sets the equilibrium price in a free market?
- Buyers and sellers together, through their reactions
- A government office
- The largest seller alone
- At $1.60, what is the gap between quantity supplied and quantity demanded?
- Equilibrium: quantity demanded = quantity supplied ($1.40, 600 for gasoline).
- Above it: surplus, price falls. Below it: shortage, price rises.
- Algebra: set Qd = Qs and solve for P.
Sources for this course (11)
- OpenStax, Principles of Economics 3e : 1.1 scarcity and Adam Smith's pin factory (openstax.org/books/principles-economics-3e/pages/1-1-what-is-economics-and-why-is-it-important)
- 2.1 budget constraint, Alphonso, opportunity cost, sunk costs (.../pages/2-1-how-individuals-make-choices-based-on-their-budget-constraint)
- 3.1 gasoline demand and supply schedules, Tables 3.1 to 3.3 (.../pages/3-1-demand-supply-and-equilibrium-in-markets-for-goods-and-services)
- 3.2 shifts, car Tables 3.4 and 3.5, chicken and beef, Green Revolution (.../pages/3-2-shifts-in-demand-and-supply-for-goods-and-services)
- 3.4 price ceilings and floors, rent control Table 3.7, EU price supports (.../pages/3-4-price-ceilings-and-price-floors)
- 5.1 midpoint elasticity (.../pages/5-1-price-elasticity-of-demand-and-price-elasticity-of-supply)
- 5.3 Table 5.2 elasticities and tax incidence (.../pages/5-3-elasticity-and-pricing)
- 한국은행 경제교육: 알기 쉬운 경제이야기(일반인용, 2020)
- 경제이야기 따라잡기(고등학생) 3. 수요·공급과 시장의 균형, 선생님을 위한 경제특강 한은런 「수요와 공급」 (bok.or.kr/portal/submain/submain/ecEdu.do?menuNo=201254)
- US Department of Labor, federal minimum wage $7.25 effective 24 July 2009 (dol.gov/agencies/whd/minimum-wage)
- 고용노동부 고시 제2025-47호, 2026년 최저임금 시간급 10,320원 (moel.go.kr/news/enews/report/enewsView.do?news_seq=18144, minimumwage.go.kr).
Checked: 2026-10-17