(i) A demand schedule is a tabular presentation of combinations of prices and different levels of quantities demanded at those prices while a supply schedule is a tabular presentation of combinations of prices and different levels of quantities supplied at those prices.
The table below shows the demand schedule and supply schedule.
| Price (per unit) |
Quantity Demanded |
Quantity Supplied |
Market Position |
| 500 |
30 |
57 |
Excess supply |
| 400 |
40 |
50 |
Excess supply |
| 300 |
45 |
45 |
Equilibrium |
| 200 |
55 |
35 |
Excess demand |
| 100 |
70 |
20 |
Excess demand |
Other illustrations of such kind are also possible: Market demand is inversely related to price while market supply is directly related to price. The schedules combined together shows the operation of the law of demand and law of supply.
The equilibrium price is the price at which the consumers are willing to purchase the same quantity which the producers are willing to sell. In the given illustration, at price 500, there is excess supply (by the amount 27 units). As we move down the schedule, we find, at price 200 and below, we have excess demand (by the amount 20 units and 50 units). At price 300, quantity demanded equals quantity supplied and hence, it is the equilibrium price.
When the market is not in equilibrium (say at price 500), producers sell the commodity at a lower price so as to attract buyers, when there is excess supply and hence the market moves towards equilibrium. Similarly, in case of excess demand (say at price 100), the buyers compete against each other for the limited product, leading to a rise in prices. Thus, when the market is in disequilibrium, the actual market price will tend to move and reach equilibrium.
(ii) A demand curve is the graphical presentation of the demand schedule showing various price quantity combinations. While the supply curve is the graphical presentation of the supply schedule. The following diagram combines the market demand crave and the market supply curve.
The equilibrium point is E where the demand curve intersects the supply curve, corresponding to which is the equilibrium price (here P0). An excess supply (higher price) reduces price, thus moving towards equilibrium while an excess demand (lower price) leads to a rise in price. Finally, the market always attains equilibrium.
