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By the end of these notes, you will be able to:
A market is any place — physical or online — where buyers and sellers come together to exchange goods and services. In economics, "the market" for a product simply means all the buyers and sellers of that product.
Market equilibrium is the point where the quantity that buyers want to buy is exactly equal to the quantity that sellers want to sell. In other words:
Quantity Demanded (Qd) = Quantity Supplied (Qs)
At equilibrium, there is no pressure for price to change. Everyone who wants to buy at the current price can buy, and everyone who wants to sell at that price can sell. The market is perfectly "balanced."
The price at which this balance happens is called the equilibrium price (also called the market-clearing price). The quantity traded at this price is called the equilibrium quantity.
How to find equilibrium — a simple example:
| Price (USD) | Quantity Demanded | Quantity Supplied |
|---|---|---|
| 5 | 40 | 10 |
| 10 | 35 | 20 |
| 15 | 30 | 30 |
| 20 | 25 | 40 |
At a price of USD 15, Qd = Qs = 30 units. This is the equilibrium. At any other price, the market is not balanced — this is called disequilibrium.
Market disequilibrium occurs when the quantity demanded does not equal the quantity supplied — the market is "out of balance." This leads to two possible situations:
A surplus happens when the price is above the equilibrium price.
Think of it this way: shops have shelves full of unsold stock. What do they do? They lower the price to attract more buyers. As the price falls, quantity demanded rises and quantity supplied falls, until the market reaches equilibrium again.
Price above equilibrium → Surplus → Price falls → Market moves back to equilibrium
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