We can now put the demand and supply curves together. This will give us a picture of the market for osteopathy. This is shown by Figure 9. Notice that there is only one price at which the quantity of treatments people want to buy is the same as the quantity the osteopaths want to sell. This is called the equilibrium price Pe. The corresponding quantity is the equilibrium quantity - Qe. The equilibrium is a state of rest where there is no pressure for change.
At any other price either buyers or sellers are dissatisfied and act to change the quantity demanded or supplied.
Excess demand
If there is excess demand, consumers bid up the price. At price P' consumers demand Q'. The price is low so a lot of people are willing and able to buy treatments. However, the low price means that there aren't enough osteopaths prepared to provide this amount of treatment. They are only prepared to provide Q". The excess demand (Q' - Q") causes the consumers to bid the price up to the equilibrium price Pe.
Excess supply
At P" the price is too high. Consumers only demand Q"' treatments. However,the osteopaths want to sell more treatment: Q"". So there is an excess of supply (Q"" - Q"'). This will lead to osteopaths having to cut their prices (to encourage more consumers to buy treatment). As sellers, they will have to reduce their prices until they reach the equilibrium price Pe. |
