Market equilibrium and price mechanism: shift demand or supply in an example avocado market, see the shortage or surplus at the old price, and follow the price to the new equilibrium

No one sets the price, yet it tells everyone what to do

In a market economy, nobody decides how many avocados get grown or who gets to eat them. When demand or supply shifts, the old price no longer clears the market, and the price itself moves until it does. Raise demand or cut supply and watch the gap at the old price push the price to a new equilibrium.

Market equilibrium Shortage 20 t at $6
Pick a story or shift each curve. Read the new price and quantity off the axes.
Try a story
Price $6.00 → $7.00 · quantity 40 → 50 t
Demand shift+20 t
Supply shift0 t
Equilibrium price
$7.00
was $6.00
Quantity traded
50 t
was 40 t a week
Three jobs the price does

Know This

When demand or supply shifts, the shortage or surplus at the old price moves the price, and that change in relative price acts as a signal, an incentive and a rationing device until quantity demanded equals quantity supplied again.