let's get an example about supply and demand so here we have the price one two three four five the quantity demanded at price of one it's ten if the price increases from one to two quantity demanded will be lower so it will be eight then we have six four two coin supplied at price of one is two if the price increases from one to two coins applied will be higher four and so on six eight and ten let's draw both supply and demand so our y-axis will be the price x-axis will be the quantity and we'll put the tickers here 2 4 6 8 10 for the price it will be 1 2 3 four five for the quantity demand at price of one we have ten units and then at price of two it's eight units at price of three six units at price for four units at price five two units let's connect all z dots together it will give us our downward slope demand curve why it's downward slope because we have a negative relationship between price and the quantity demanded if price goes up quantity demanded will be lower and vice versa let's draw the supply curve at price of one when it supplies two at price of two coin supplies four at price of three coins supplied six at price four quantity supplied eight at price five coins applied stem let's connect all the dots together this will give us our upward supply curve so let's look at the table first can you tell me where is our equilibrium point so what i mean by equilibrium it means that quantity demanded is equal to quantity supplied so if you look here at the table you'll cover that at price of three our quantity demanded is equal to one supplied is equal to six and that's why here we call it equilibrium so our equilibrium price is three our equilibrium quantity is six why because quantity demanded is equal to coin supplied can we get it from the graph yes if you look here where is the point of intersection between the supply curve and demand curve it will be the point here where we have equilibrium price is equal to three and equilibrium quantity is equal to six so this is our equilibrium quantity and equilibrium price so we can get it either from the table or from the graph so now let's look at the table what will happen if we have a price level above our equilibrium price our equilibrium price is three but we'll have a price at four so at price of four it will intersect with the demand curve and this will give us a quantity demanded of four then it will intersect with our supply curve and it will give us our quantity supplied of eight therefore we know that the quantity supplied of eight is bigger than quantity demanded of four therefore what is the difference between one supply and consequent coin supply eight minus quantity demanded for eight minus four is four units so this means that we have excess supply which means we have a surplus of four units what will be the impact of a surplus every time we have a surplus this would result in lower prices until we reach equilibrium let's get an opposite example what if we have a price level below equilibrium for example at one our equilibrium price is three and we have a price level at one it will intersect with our supply curve and it will give us quantity supplied of two it will intersect with that band curve and it will give us quantity demanded of temp i know that here quantity demanded is bigger than coin supplied of how many units eight minus two is eight units so this means that we have x's demand of eight units excess demands it means that we have a shortage so every time we have a shortage what will be the impact on price price will go up until we reach equilibrium and this is what means by free market it means that the market will correct itself by itself if we are away from equilibrium such as if we have a price level above equilibrium it means that we have a surplus or excess supply the impact of a surplus would result in lower prices until prices reach equilibrium and vice versa if we have a price level below our equilibrium price this would result in excess demand or a shortage consequently price level will increase until we reach equilibrium price and this is how the market will correct itself by itself