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This table demonstrates and shows the differences of a market in shortage, equilibrium, in surplus, and their effect on pricing.

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This picture shows the price of bacon, and how at $6, the quantity demanded meets the quantity supplied.

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This image shows the price versus the quantity, and how the supply can meet the demand at create a point of equilibrium

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This website emphasizes that there will always be a point where the supply and the demand will meet, called the point of equilibrium. It uses examples showing a graph, as well as a table, to show where the point of equilibrium will exist. The website brought forward a new definition, called "equilibrium quantity", which means the the amount that customers want to buy is equal to the amount supplied by the manufacturer

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The actual price you see in the world is a balancing act between supply and demand.

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This website has a quick and simple format to explain and show how market equilibrium works. It explains and shows how if the market demand increases, the supply will increase, and therefore the manufacturer can demand a higher price. Same goes if the demand decreases, the manufacturer will go into a surplus, and will have to drop the price in order to sell more units.

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Definition of market equilibrium - A situation where for a particular good supply = demand. When the market is in equilibrium, there is no tendency for prices to change. We say the market-clearing price has been achieved.

A market occurs where buyers and sellers meet to exchange money for goods.

The price mechanism refers to how supply and demand interact to set the market price and amount of goods sold.

At most prices, planned demand does not equal planned supply. This is a state of disequilibrium because there is either a shortage or surplus and firms have an incentive to change the price.

Market equilibrium

Market equilibrium can be shown using supply and demand diagrams

In the diagram below, the equilibrium price is P1. The equilibrium quantity is Q1.

If price is below the equilibrium

In the above diagram, price (P2) is below the equilibrium. At this price, demand would be greater than the supply. Therefore there is a shortage of (Q2 - Q1)

If there is a shortage, firms will put up prices and supply more. As price rises, there will be a movement along the demand curve and less will be demanded.

Therefore the price will rise to P1 until there is no shortage and supply = demand.

If price is above the equilibrium

If price was at P2, this is above the equilibrium of P1. At the price of P2, then supply (Q2) would be greater than demand (Q1) and therefore there is too much supply. There is a surplus. (Q2-Q1)

Therefore firms would reduce price and supply less. This would encourage more demand and therefore the surplus will be eliminated. The new market equilibrium will be at Q3 and P1.

Movements to a new equilibrium

If there was an increase in income the demand curve would shift to the right (D1 to D2). Initially, there would be a shortage of the good. Therefore the price and quantity supplied will increase leading to a new equilibrium at Q2, P2.
2. Increase in supply

An increase in supply would lead to a lower price and more quantity sold.
Related posts
First published 28 Nov 2010. Last updated 28 Nov 2019

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Definition of market equilibrium - A situation where for a particular good supply = demand. When the market is in equilibrium, there is no tendency for prices to change. We say the market-clearing price has been achieved. A market occurs where buyers and sellers meet to exchange money for goods.

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By Ryan Handley

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This project will describe the attributes of market equilibrium, and what it means for the every day person.
Market equilibrium is state of where the market demand is equal to the market supply. Since the two are the same, this means that the price should not change unless some sort of outside action has an effect on either the supply or the demand

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In this video, they do a great job explaining what happens when the demand of a product either exceeds, meets, or doesn't meet the markets need. Using an example of apples, it shows that when a products price is low, the market will demand more at a lower price. When the price is high, the market will demand less. Market equilibrium is that sweet spot where the price is low enough that it meets the demand of the market.

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Market equilibrium | Supply, demand, and market equilibrium | Microeconomics | Khan Academy

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With market equilibrium explained, this video explains what happens to a product when the supply and demand changes to do different outside factors. This shows how the market equilibrium can be fluid based on what factors that can affect the customers demand and the manufacturers ability to supply.  I liked the different examples on the affect of the apple market that would lead to an increase or decrease in price.

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This video uses different examples to explain market equilibrium. It does cover all the same topics though, using market supply vs demand, and the effect it has in the price sold and the quantity demanded.

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Demand and Supply- EconMovies #4: Indiana Jones

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While this website covers many of the topics that can affect market equilibrium, It brings up an interesting term called market clearing. This is where the market has reached equilibrium, and there is no wastage of a product, because all of the product supplied is being bought out by the customer. This also means that the market should not experience any shortages as long as there are no outside forces that affect the market.

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Economic theory suggests that, in a free market,a single price will exist which brings demand and supply into equilibrium, called equilibrium price