The diagram that includes both the market demand curve and the market supply curve is called the Marshall Cross, named in honor of the influential British economist Alfred Marshall. The Marshall Cross is one of the most fundamental analytical tools for economists, clearly indicating the consequences of market changes.

The notable point on the diagram is the intersection of the market demand and supply curves, known as the equilibrium point. The p coordinate on the vertical axis at the intersection shows the price at which the quantity demanded by buyers equals the quantity supplied by sellers. This price is called the equilibrium price, also known as the market-clearing price, because at this price there are no unsold goods, and no consumer willing to buy at this price goes without the product.

Let us examine how equilibrium forms in the market. If the price is higher than the equilibrium price, buyers, due to their fixed income and substitution possibilities, will be willing and able to purchase less. This means the quantity demanded will be lower than at the equilibrium price. At the same time, the higher price encourages producers to produce more to achieve greater profit. As a result, the quantity supplied will exceed the equilibrium quantity. This leads to a surplus or excess supply. Unsold stock prompts sellers to lower the price, driving it towards the equilibrium price. As the price decreases, buyers purchase more of the product, restoring equilibrium.

When the quantity supplied exceeds the quantity demanded, an excess supply (also called a surplus of goods) occurs. Unsold inventories encourage sellers to reduce prices, and the price begins to move toward the equilibrium price. As the price falls, buyers will purchase more of the product, and the market moves back to equilibrium.
When the price is below the equilibrium level, the quantity demanded by buyers becomes greater than the equilibrium quantity, while the quantity supplied by sellers is smaller.

An excess demand, also known as a shortage, appears in the market. As a result, producers begin to raise prices and increase their production, while the quantity demanded by buyers decreases. As the price rises, the market returns to equilibrium.