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24 February, 2016 - 16:12

The price and quantity equilibrium is where demand and supply intersect. At any price above that equilibrium, the quantity supplied exceeds the quantity demanded, which results in a surplus (and no transaction between buyer and seller). At any price below, the quantity demanded exceeds the quantity supplied, which results in a shortage. Only at the intersection of demand and supply are the quantities demanded and supplied equal. The price and quantity equilibrium is stable.

Figure 3.3 Demand and Supply Equilibrium