we have talked about demand and Supply separately now let's bring them together and see where price actually come from how they emerge in a market economy demand slop downward Supply slope over where they intersect that is a special point equilibr point or we say market clearing point at the equilibrium point we can read equilibrium price in this example three dollar we can also find the equilibrium quantity in this example 15 unit so what is so special about equilibrium at equilibrium quantity demanded equal quantity supplied demand and Supply me think about it demand comes from the table of price and Quantum demanded right and Supply from table of price and quantity supplied only at the equilibrium price quantity demanded quantity Supply they mat up why do we create equilibrium do you remember concept of equilibrium yeah it is a state where people have no incentive to change their behavior they've responded to incentives interacted with others and they are basically happy with the downcome let's see why intersection point is only equilibrium suppose price is higher let's say $5 at this price quantity supplied right here is 25 right and Quantum demanded here nine so we have a surplus of 16 right what happened sellers eager to sell they have incentive to lower their prices price starts to fall now what if price is too low like $1 here then Quantum demanded at $1 I'm sorry Quantum demanded so we look at look at demand curve and that is 21 and quantity Supply There is five in this case shortage right we have a shortage of 16 unit so buyers eager to buy they have incentive to offer higher prices so price start to rise the price is constantly being pushed towards the equilibrium point at $3 neither buyers nor sellers have incentive to change that is equilibrium behind the price we see every day there is this kind of push and pull this competition between buyers and seller price emerging right it emerges from this sort of competition when we say price come from supply and demand we mean both buyers and sellers play your L it's easy to say very simple but surprisingly easy to forget look at this cartoon this little girl trying to sell lemonade for billion dollar is she smart she said well I'm going to sell one glass and I'm s life however she's ignoring demand just because she wants million dollar doesn't mean anyone will pay it right this might seem silly but I hear similar things all the time my land R raised my rent oil company raised the prices the bank raised the interest rate people often talk like prices are set by sellers alone but price come from both supply and demand so when people say these they are not much different from this ler that's the point I'm trying to make so high price might be due to high supply cost or it might be due to high demand or both yeah of course this statement can be valid if they have some Market power we will talk about it later I have another case I want to think about Fried Chicken price in Korea in some places it cost $20 or chicken fried chicken $20 well people complain it's too expensive especially when they Lear price of chicken itself is only $2 so people outraged but yeah and yeah they accuse seller of Being Greedy but they are forgetting about demand if lots of people love fried chicken and they are willing to pay $20 then price will be 20 it's not just the cost of chicken it's also labor rent and other inputs complaining about price without considering both supply and demand is missing the bigger picture so remember prices are determined by intersection of supply and demand both buyers and seller play a crucial role