In a perfectly competitive market, equilibrium is achieved (and markets clear with no shortages or surpluses) when the price of a good or service brings the quantity supplied and quantity demanded into balance, in the sense that buyers wish to purchase the same quantity that sellers wish to provide.

Equilibrium price provides information to economic decision-makers to guide resource allocation.

Economists use consumer surplus and producer surplus to measure the benefits markets create to buyers and sellers and understand market efficiency.

Market equilibrium maximizes total economic surplus in the absence of market failures, meaning that perfectly competitive markets are efficient.

Whenever markets experience imbalances creating disequilibrium prices and quantities, surpluses, and shortages—market forces drive price and quantity toward equilibrium.

Factors that shift the market demand and market supply curves cause price, quantity, consumer surplus, producer surplus, and total economic surplus (within that market) to change. The impact of the change depends on the price elasticities of demand and supply.

Explain (using graphs as appropriate) how equilibrium price, quantity, consumer surplus, and producer surplus for a good or service are determined.

Calculate (using data from a graph or table as appropriate) areas of consumer surplus and producer surplus at equilibrium.

Define a surplus and shortage.

Explain (using graphs where appropriate) how changes in underlying conditions and shocks to a competitive market can alter price, quantity, consumer surplus, and producer surplus.

Calculate (using data from a graph or table as appropriate) changes in price, quantity, consumer surplus, and producer surplus in response to changes in market conditions or market disequilibrium.