Demand, Supply, and Equilibrium

Read this section on the Circular Flow of Economic Activity. Learn about the how the circular flow model provides a link between the demand and supply in the product and factor markets.

Demand, Supply, and Equilibrium


  1. Use demand and supply to explain how equilibrium price and quantity are determined in a market.
  2. Understand the concepts of surpluses and shortages and the pressures on price they generate.
  3. Explain the impact of a change in demand or supply on equilibrium price and quantity.
  4. Explain how the circular flow model provides an overview of demand and supply in product and factor markets and how the model suggests ways in which these markets are linked.

In this section we combine the demand and supply curves we have just studied into a new model. The model of demand and supply uses demand and supply curves to explain the determination of price and quantity in a market.

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