Equilibrium price: the price at which quantity demanded equals quantity supplied. There is no excess demand and no excess supply.
On a diagram it is where the demand curve (D) crosses the supply curve (S). Mark the equilibrium price (P) on the vertical axis and the equilibrium quantity (Q) on the horizontal axis.
At equilibrium the market clears: everyone who wants to buy at that price can, and producers sell all they want to sell at that price.
The price stays there until something changes demand or supply. Real markets change all the time, so they are rarely in equilibrium for long.
You can find equilibrium from a table too: look for the price where the two quantities are the same.
Price of a reusable water bottle
Quantity demanded per week
Quantity supplied per week
£5
800
400
£6
700
500
£7
600
600
£8
500
700
£9
400
800
Equilibrium: where demand meets supply
Worked exampleUsing the table (invented data), state the equilibrium price and quantity of water bottles.
Look along the rows for the price where quantity demanded = quantity supplied.
At £7, quantity demanded is 600 and quantity supplied is 600.
Equilibrium price £7; equilibrium quantity 600 bottles a week
Exam tipAQA's multiple-choice questions define equilibrium as the price where quantity demanded equals quantity supplied, or where there is no excess demand or excess supply. ‘The price consumers want to pay’ or ‘the highest price’ are distractors.
Equilibrium price
The price at which quantity demanded equals quantity supplied.
Equilibrium quantity
The amount bought and sold at the equilibrium price.
3.1.3.3
Excess demand: shortages push the price up
Excess demand (a shortage): when quantity demanded is greater than quantity supplied. It happens when the price is below equilibrium.
Excess demand = quantity demanded − quantity supplied at that price.
You see it as queues, waiting lists, ‘sold out’ signs and resale at higher prices, for example a must-have toy in the weeks before Christmas.
How the market clears it: sellers see they could charge more, so the price rises → quantity supplied extends (rises along the supply curve) and quantity demanded contracts (falls along the demand curve) → the gap closes at the equilibrium.
Nothing shifts here: the price change causes movements along both curves.
Below the equilibrium price, quantity demanded is greater than quantity supplied
Worked exampleUsing the water-bottle table, calculate the excess demand at £5 and explain what will happen to the price.
At £5: quantity demanded 800, quantity supplied 400.
Excess demand = 800 − 400 = 400 bottles a week.
Sellers can raise the price; supply extends and demand contracts until the price reaches £7.
400 bottles a week; the price rises towards £7
Exam tipWhen you explain a shortage, say what happens to the price and then to both quantities. ‘There is a shortage’ on its own only names the problem.
Excess demand
When quantity demanded is greater than quantity supplied at the current price: a shortage.
Extension of supply
A rise in quantity supplied caused by a rise in the product's own price (a movement along the supply curve).
Contraction of demand
A fall in quantity demanded caused by a rise in the product's own price (a movement along the demand curve).
3.1.3.3
Excess supply: surpluses push the price down
Excess supply (a surplus): when quantity supplied is greater than quantity demanded. It happens when the price is above equilibrium.
Excess supply = quantity supplied − quantity demanded at that price.
You see it as unsold stock, ‘sale’ signs, empty seats and food thrown away.
How the market clears it: sellers cut the price to get rid of stock → quantity supplied contracts and quantity demanded extends → the surplus disappears at the equilibrium.
Above the equilibrium price, quantity supplied is greater than quantity demanded
Worked exampleUsing the water-bottle table, calculate the excess supply at £9.
At £9: quantity supplied 800, quantity demanded 400.
Excess supply = 800 − 400.
400 bottles a week
Exam tipTo read excess supply or demand from a graph, draw a line across at the price given, read off both quantities and subtract the smaller from the larger. Check which one is bigger: that tells you whether it is excess supply or excess demand.
Excess supply
When quantity supplied is greater than quantity demanded at the current price: a surplus.
3.1.3.3
When demand or supply shifts: the four cases
Any factor other than the product's own price shifts a curve (the factors are in the Demand and Supply topic). A shift creates excess demand or excess supply at the old price, so the price moves to a new equilibrium.
Demand shifts: price and quantity move in the same direction.
Supply shifts: price and quantity move in opposite directions.
Both shift at once: one of the two changes is certain and the other depends on which shift is bigger. If demand falls and supply rises, the price is certain to fall (both push it down), but the quantity could go either way.
Step by step: (1) Which curve does the factor affect? (2) Which way does it shift? (3) At the old price, is there now excess demand or excess supply? (4) So does the price rise or fall? (5) What happens to quantity?
Change
Curve that moves
New equilibrium price
New equilibrium quantity
Increase in demand
D shifts right
Rises
Rises
Decrease in demand
D shifts left
Falls
Falls
Increase in supply
S shifts right
Falls
Rises
Decrease in supply
S shifts left
Rises
Falls
Demand shifts: price and quantity move the same way
Supply shifts: price and quantity move opposite ways
Worked exampleDemand for water bottles rises by 200 at every price after a ‘refill’ campaign (invented). Using the original table, find the new equilibrium.
At £7 there is now excess demand (800 − 600 = 200), so the price rises.
At £8, quantity demanded = quantity supplied = 700.
New equilibrium: £8 and 700 bottles a week (price and quantity both rise)
Exam tipExaminers say students often mix up demand and supply factors or the direction of a shift. Higher costs, bad weather and a new tax hit supply; incomes, tastes, advertising and the prices of related goods hit demand.
Increase in demand
A shift of the whole demand curve to the right: more is demanded at every price.
Decrease in supply
A shift of the whole supply curve to the left: less is supplied at every price.
3.1.3.3
Drawing the 3-mark diagram
Each Paper 1 has a 3-mark ‘Draw’ question, usually a demand and supply diagram showing one change. Draw in pencil and use a ruler.
Mark 1: draw and label the original D and S, with Price on the vertical axis and Quantity on the horizontal axis. Mark the original equilibrium P and Q on the axes with dotted lines.
Mark 2: shift the correct curve in the correct direction and label it D1 or S1. An arrow between the curves helps.
Mark 3: mark the new equilibrium P1 and Q1 on the axes, higher or lower than P and Q as they should be.
Shift the wrong curve and you can only get the first mark, even if you label it with the right letter.
Label the axes with the product if you like (‘Price of cinema tickets’), but ‘Price’ and ‘Quantity’ are enough.
A full-mark answer: a new tax on cinema tickets shifts supply left
Exam tipAbout half of students get full marks on this question. The commonest losses are labelling only the original equilibrium and labelling D and S the wrong way round. Demand slopes down, supply slopes up.
3.1.3.3
Using demand and supply for real-world markets
Weather: a frost that damages orange groves shifts the supply of oranges left → the price rises and fewer are sold.
Costs: higher energy or wage costs shift supply left in almost every market. In 2026, conflict in the Middle East disrupted energy supplies and oil rose to about $95 a barrel in the second quarter (Bank of England and OBR, checked November 2026): a supply shock that pushed up prices in markets that use a lot of energy.
Tastes: when plant-based milk became fashionable, demand for it shifted right → its price and sales rose.
Seasons: demand for hotel rooms in a seaside town shifts right in August and left in November, so room prices rise in summer and fall in winter.
New technology: cheaper ways to make solar panels shift supply right → the price falls and more are installed.
Always say which curve, which way, and what happens to price and quantity.
Exam tipAQA's 2-mark ‘Explain one reason why the equilibrium price of… changed’ needs the cause and the effect on the price. ‘Demand fell’ is 1 mark; ‘incomes fell, so demand shifted left, creating excess supply, so the price fell’ is 2.
Supply shock
A sudden event, such as a war, a poor harvest or a flood, that cuts supply and pushes prices up.
3.1.3.3
Showing revenue on a demand and supply diagram
Total revenue = price × quantity (the full definition is in the Costs, Revenue, Profit and Productivity topic).
On a diagram, revenue is the rectangle under the equilibrium point: height P, width Q, area P × Q.
When the equilibrium moves, the rectangle changes size. Compare the old and new rectangles to see whether sellers' revenue went up or down.
Whether revenue rises after a price change depends on how much quantity changes: this is price elasticity (see Price Elasticity of Demand and Supply).
Revenue in the market is the area P × Q
Worked exampleWater bottles (invented): find total revenue at the original equilibrium and after the demand increase.
Original: £7 × 600 = £4,200 a week.
New: £8 × 700 = £5,600 a week.
Change: £5,600 − £4,200 = £1,400.
Revenue rises from £4,200 to £5,600, up £1,400 a week
Exam tipReading revenue from a graph: go up from the quantity to the demand curve, across to the price, then multiply. Give the unit (£) and the time period (‘per week’).
Total revenue
The money from sales: price × quantity.
3.1.3.4
Complements and substitutes
Complements (complementary goods): goods used together, such as printers and ink cartridges, games consoles and games, cars and petrol.
Substitutes: goods that can be used instead of each other, such as tea and coffee, buses and trains, butter and margarine.
Complements: if the price of one rises, demand for the other falls (shifts left). If its price falls, demand for the other rises.
Substitutes: if the price of one rises, demand for the other rises (shifts right), because buyers switch. If its price falls, demand for the other falls.
Quick test: imagine the first good becomes dearer. Do people want less of the second (complement) or more (substitute)?
The price of good A…
If B is a complement, demand for B…
If B is a substitute, demand for B…
Rises
Falls (shifts left)
Rises (shifts right)
Falls
Rises (shifts right)
Falls (shifts left)
Exam tipAQA's vocabulary list spells it ‘complimentary goods’. The economics word is complementary: they complete each other.
Complements
Two goods that are usually consumed together.
Substitutes
Goods or services that can be used to replace one another.
3.1.3.4
How a change in one market affects related markets
Markets are linked. A change in one market changes the price there, and that price change shifts demand in the markets for its complements and substitutes.
Chain for complements: cheaper production of printers → supply of printers shifts right → printer prices fall → more printers bought → demand for ink cartridges shifts right → cartridge price and sales rise.
Chain for substitutes: poor coffee harvest → supply of coffee shifts left → coffee price rises → some drinkers switch to tea → demand for tea shifts right → tea price and sales rise.
Through costs: if a product is an input to another (wheat for bread, steel for cars), a rise in its price shifts the supply of the other product left.
Joint supply (extra): some goods are produced together, such as beef and leather. More beef production means more leather is supplied too.
Strong answers take each step in order: the first market → its price → the related market's curve → its price and quantity.
Two linked markets: cheaper printers raise demand for ink cartridges
Exam tipIn June 2024 only about one student in five reached the top level on a question about how price rises in some markets affect others. The best answers built the chain: costs → supply → price → complements and substitutes.
Related markets
Markets linked because their goods are complements, substitutes, inputs or jointly supplied.
Joint supply
When producing one good also produces another, such as beef and leather.
3.1.3.3, 3.1.3.4
Common diagram and reasoning errors
D and S swapped: demand slopes down from left to right; supply slopes up.
Axes unlabelled: Price up the side, Quantity along the bottom.
Only the original equilibrium marked: the third mark needs P1 and Q1.
Wrong curve shifted: a cost change shifts supply; a change in incomes or tastes shifts demand. A change in the product's own price shifts nothing: it is a movement along.
‘Demand falls’ after a price rise: write ‘quantity demanded contracts’. A shift of demand is a different thing.
Excess demand mixed up with an increase in demand: excess demand is a gap at one price; an increase in demand is a shift of the whole curve.
Related goods the wrong way round: dearer complement → less demand; dearer substitute → more demand.
Exam tipBefore you leave a diagram, check four things: axes labelled, curves labelled (D, S, D1 or S1), old equilibrium marked, new equilibrium marked.
Genious