Question

How can you locate the equilibrium point on a demand and supply graph?

Short answer

To locate the equilibrium point on a demand and supply graph, first identify the demand curve (downward-sloping) and the supply curve (upward-sloping). Then, find the intersection point of these two curves, which represents the equilibrium price (P*) and quantity (Q*). Read the values of P* and Q* from the vertical (price) axis and horizontal (quantity) axis, respectively. The equilibrium point indicates the market-clearing price and quantity, where there is no excess supply or demand and resources are efficiently allocated.

Step-by-step solution

Identify the demand and supply curves

In the given graph, we should first identify the demand and supply curves. The demand curve is usually downward-sloping, implying that as price decreases, the quantity demanded increases. The supply curve is typically upward-sloping, meaning that as price increases, the quantity supplied also increases.

Observe the intersection point

Once the demand and supply curves are identified, we should look for the point where these two curves intersect or cross each other. This point is the equilibrium point, and it represents the price (P) and quantity (Q) at which the market is in balance.

Determine the equilibrium price and quantity

To find the equilibrium price and quantity, read the values of P and Q from the intersection point on the graph. The equilibrium price (P*) is the value on the vertical (price) axis, and the equilibrium quantity (Q*) is the value on the horizontal (quantity) axis.

Interpret the results

The equilibrium point represents the market-clearing price and quantity. At this point, there is no excess supply or demand, meaning that producers are willing and able to meet the demand of consumers at the given price level. When a market is in equilibrium, resources are efficiently allocated, and there is no tendency for the price or quantity to change unless there is an external shock or policy change.