Markets naturally move towards equilibrium, where neither the comsumer or producer is better off taking a different action. A competitive market is in equilibrium when the price moves to a level at which the quantity demanded = the quantity supplied.

The price that matches the quantity supplied & quantity demanded is the equilibrium price (aka market clearing price), while the quantity bought & sold at that ideal price is the equilibrium quantity.

How do we determine these?

By putting both the supply & demand curves on a graph. After those are plotted, find the intersection of the 2 lines. This is called the equilibrium point. Point E, as it is often referred to, is the total equilibrium of the market.

basics | supply | demand | equilibrium | shortage | surplus | graphs