Description 
The narrator demonstrates how the 
overlap of consumer demand and firm 
supply sets equilibrium price. Marge 
considers three prices before coming up 
with equilibrium price.
 

Audio Transcript

Marge: I think it's time I raise my price! 

Narrator: Marge decides to raise her price of burgers because she believes that people will pay more for them. What she fails to anticipate though, is the large decrease in quanitity demanded at higher prices. This is illustrated by a simple demand curve.

Narrator: The supply curve shows that Marge is willing to produce 150 burgers per day if she could sell all her burgers at $3 per burger.

Narrator: If we look at the demand curve for burgers, we see that the quantity demanded at the price of $3 is 50 burgers per day. In other words, Marge could only sell 50 burgers at this price. She would have a surplus of 100 burgers.

Narrator: When Marge was charging $2 per burger, she was running out of burgers before the end of the day.  The quantity demanded at $2 is 150 burgers per day,  but Marge was producing far fewer than that.

Narrator: She was faced with a shortage at the end of the day.

Narrator: When Marge changes her price to $2.50, she unwittingly arrives at the equilibrium price, where the quantity supplied equals the quantity demanded.  This point, where the supply curve crosses the demand curve, represents market equilibrium. 

Narrator:
In Marge's case, market equilibrium occurs when she makes 100 burgers per day and sells them for $2.50 each. 

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