How to read your result
Market equilibrium is the single price and quantity where the amount buyers want to purchase exactly equals what sellers want to provide — no shortage, no surplus, no pressure on price to move. The graph shades two triangles: consumer surplus (value buyers receive above the price they pay) and producer surplus (value sellers receive above their minimum acceptable price); together they are total surplus, the gains from trade, largest exactly at this competitive equilibrium. Shift either curve and both price and quantity move — demand up moves both up, supply up lowers price but raises quantity. A price ceiling or floor only has an effect (a shortage or a surplus) when it is set on the wrong side of equilibrium; otherwise the market clears normally. The single most counter-intuitive result here is tax incidence: who actually bears a per-unit tax is set by relative elasticity, not by who legally pays it — the steeper (more inelastic) side of the market carries the larger share, and the units that stop trading because of the tax become deadweight loss, value destroyed that nobody captures.
Worked example
Demand P = 100 − 2Q and supply P = 20 + 3Q. Setting them equal: Q* = (100 − 20) ÷ (2 + 3) = 80 ÷ 5 = 16, and P* = 100 − 2 × 16 = $68.
Consumer surplus = ½ × (100 − 68) × 16 = $256; producer surplus = ½ × (68 − 20) × 16 = $384; total surplus = $640 — this is the canonical case the engine and Excel workbook are validated against.
Because demand is flatter than supply here (b = 2, d = 3), a $10 per-unit tax would split as buyers bearing 2 ÷ 5 = 40% and sellers bearing 3 ÷ 5 = 60%, shrinking quantity from 16 toward 14 and destroying about $10 of surplus as deadweight loss.
Limitations
Methodology
This calculator solves linear inverse demand (P = a − bQ) and supply (P = c + dQ), computes surplus as the standard welfare triangles, derives shift, price-control, tax, and subsidy outcomes analytically, and reports point elasticity and slope-based tax incidence. The engine is validated against the canonical worked case above and several hand-computed policy cases on every change, and the Excel workbook's formulas are checked with a spreadsheet formula engine against the same maths.
- Demand and supply are assumed linear over the relevant range; real schedules can bend, kink, or shift.
- It models a single competitive market in isolation, ignoring related markets, expectations, and time lags in adjustment.
- Surplus, deadweight loss, and incidence are exact only for the linear model; they approximate curved real-world curves.
- It is a model of an idealised single market, not a forecast of real prices.
Read the guide
There is no dedicated market equilibrium guide yet. For a deeper, two-point elasticity treatment, see the price elasticity of demand calculator.