What is market equilibrium?

Market equilibrium refers to the condition in which the quantity of goods supplied equals the quantity of goods demanded at a certain price level. This is achieved when supplier's prices align perfectly with the buyer's willingness to pay. At this point, there is no inherent pressure for the price to change because the desires of both consumers and producers are met.

When market equilibrium is reached, it leads to a stable market condition where producers can sell all the goods they produce, and consumers can purchase exactly the quantity they desire without excess or shortage. This balance is crucial for efficient market functioning, allowing resources to flow where they are most needed and optimizing overall economic welfare.

In contrast, scenarios like excess supply (surplus) or excess demand (shortage) indicate that the market is not at equilibrium, as changes would be necessary to adjust prices and quantities.