Equilibrium price

Definition

Equilibrium price is the market price where the quantity of goods supplied equals the quantity of goods demanded. It represents a state of balance in a perfectly competitive market.

5 Must Know Facts For Your Next Test

1. Equilibrium price occurs when there is no excess supply or demand.
2. It can change due to shifts in supply and demand curves.
3. At equilibrium price, the market clears, meaning all products are sold.
4. Government interventions like subsidies and taxes can affect equilibrium price.
5. Understanding equilibrium price is crucial for analyzing market efficiency.

Review Questions

• What happens to the market when it reaches equilibrium price?
• How do shifts in supply and demand curves affect equilibrium price?
• Why is equilibrium price important for understanding market efficiency?

Related terms

Supply Curve: A graph showing the relationship between the quantity of a good that producers are willing to sell and its price.

Demand Curve: A graph showing the relationship between the quantity of a good that consumers are willing to buy and its price.

Market Clearing Price: Another term for equilibrium price, where the amount supplied equals the amount demanded.