(Blue): Given excess in demand,
manufacturers are forced to produce more quantities of their
products, but they will only do so at higher prices. Therefore,
prices would go up to match the equilibrium.
(Red): Given excess in supply at
high prices, few people are willing to buy. The sellers are
therefore forced to rollback their prices to the equilibrium
level.
(Green): There is an equilibrium
between the price determined and the quantity supplied. With Supply
and Demand meeting half way at this point, the buyers are
purchasing products at the cost in which suppliers are also willing
to supply.
Applications of Price
Determination
The chart above shows the application of supply and demand in
labor. This chart shows an excess supply of workers.
Because of the minimum wage set, there's a number of people who
are considered unemployed. At the same time, moving the minimum
wage lower will results in employing more people at subhuman
wages.
