4.1: Market Equilibrium

Market Equilibrium is the condition where the supply of an item equals its demand at the same price. At this juncture, the supply and demand curves intersect, determining the equilibrium price and quantity. In "Principles of Economics," Alfred Marshall metaphorically described supply and demand as the two blades of a scissor, indicating that both factors are equally important in determining the equilibrium price in a market.

Equilibrium Price and Quantity: Illustrated through a different scenario, consider the coffee market as an example. The equilibrium price is the price where the quantity demanded by the buyers is equal to the quantity demanded by the sellers.

Market-Clearing Price: This term is synonymous with the equilibrium price because it clears the market of any surplus where some willing sellers are left with unsold items at that price, or shortage where some willing consumers are unable to buy the items at that price. At the market-clearing price, the quantity supplied exactly matches the quantity demanded.

Market equilibrium is not static; it evolves with changes in external factors. For instance, a surge in coffee popularity due to new health research could shift the demand curve rightward, altering the equilibrium. Understanding market equilibrium is crucial for analyzing how markets function in real life.

Market equilibrium refers to the condition in a market where the quantity supplied matches the quantity demanded.

At equilibrium, the supply and demand curves intersect. The price at this intersection is known as the equilibrium price, and the corresponding quantity is the equilibrium quantity.

Consider a hypothetical example of the sugar market in the United States of America. 

Here, the graph shows the demand and supply of sugar. They intersect at six hundred dollars per ton, where the demand and supply for sugar is twelve million metric tons. This point indicates the market equilibrium, resulting in equilibrium price and quantity.

The equilibrium price is also referred to as the market-clearing price. Because at this price, everyone in the market is satisfied. Buyers have purchased all they desire, and sellers have successfully sold all they wish to sell, which is the equilibrium quantity.

However, market equilibrium can change over time. Factors such as consumer preferences, production costs, or government regulations can influence this equilibrium.