c. The market

Figure AFigure B

We can now put the demand (see Figure A) and supply (see Figure B) curves together. This will give us a picture of the market for osteopathy. This is shown by Figure C. Notice that there is only one price (see Figure D) 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 P^e (see Figure E). The corresponding quantity is the equilibrium quantity (see Figure F) - Q^e. The equilibrium (see Figure G) is a state of rest where there is no pressure for change.

Figure CFigure DFigure EFigure FFigure G

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" (see Figure H). The excess demand (Q' - Q") causes the consumers to bid the price up to the equilibrium price P^e (see Figure I).

Figure HFigure I

Excess supply

At P" (see Figure J) the price is too high. Consumers only demand Q"' treatments. However,the osteopaths want to sell more treatment: (see Figure K) 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 (see Figure L) P^e.

Figure JFigure KFigure L

 
So the free interaction of buyers and sellers in the market automatically leads to a single price at which the quantity traded 'clears' the market, i.e. the quantity supplied equals the quantity demanded.