We have now examined both demand and supply under competitive conditions (in this chapter); these concepts are summarized in Figure 7-11. We are now ready to consider how demand and supply interact, by putting them together, as in Figure 7-12.
Figure 7-11 Supply and demand schedules for steak in Cantown, March 1982
Demand
The Relationship between the price of the product and the number of units buyers will offer to buy
Price of steak per kilogram Quantity demanded (kilograms)
$10 20,000
8 30,000
6 50,000
4 80,000
2 120,000
Supply
The Relationship between the price of the product and the number of units producers will offer to sell
Price of steak per kilogram Quantity supplied (kilograms)
$10 100,000
8 80,000
6 50,000
4 20,000
2 0
As the supply and demand schedules in Figure 7-12 show, the price of steak will tend to settle at $6 per kilogram. This is called the equilibrium price. It is not possible for the price to stabilize at any other level, because all other prices lead to either a shortage or a surplus.
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