Econ Lab · Markets
Market equilibrium
Nobody sets the price of coffee. No committee meets to decide it. Yet most days the shelves are neither bare nor overflowing. A single price emerges that just balances what buyers want against what sellers offer.
Try to outsmart it. Grab the dashed line and set whatever price you like. Then watch what the market does about it.
Drag the price line and watch the gap between what buyers want and what cafes make. The market is at rest only where the two meet.
At this price the coffee market clears. Buyers want exactly as many cups as cafes will make, of them, so no buyer is turned away and no cup goes unsold. With no unmet want on either side, nothing pushes the price either way. Shift demand or supply and the clearing point moves.
Drag the dashed price line up and down. Shift demand or supply with the sliders. On a phone, the sliders are easiest.
Set the price too high
Push the price above where the lines cross. Sellers love it and rush to supply a lot, but buyers retreat. Now there is more for sale than anyone wants to buy. That leftover is a surplus, and it does not just sit there. Sellers stuck with unsold stock cut their prices to move it, and the price drifts back down.
Set it too low
Drag it the other way, below the crossing. Now buyers swarm in and sellers hold back, so there is not enough to go round. That is a shortage. Buyers compete for the little on offer and bid the price up. Either way the price is shoved toward the same place.
Where it settles
The only price with no pressure on it is the one where the lines meet. There, quantity demanded equals quantity supplied, the surplus and the shortage both vanish, and the market clears.
Now shift a curve. A jump in demand or a change in costs moves the whole line, and the clearing point slides to a new spot. Same machine, new answer.
What you just did
You watched supply and demand find a price with no one in charge. Shortages and surpluses are not failures of the market, they are the very signals that steer it. This is the engine under almost every result in microeconomics, and the next modules just add detail to it.