Equilibrium Price
Definition
The equilibrium price is the price at which the quantity demanded of a good or service equals the quantity supplied, resulting in market stability.
Analogy
Imagine a seesaw with two people on it. When both people are balanced and have equal weight, the seesaw is in equilibrium. Similarly, when the quantity demanded and supplied are equal, the market is in equilibrium.
Related terms
Surplus: A surplus occurs when the quantity supplied exceeds the quantity demanded at a given price.
Shortage: A shortage occurs when the quantity demanded exceeds the quantity supplied at a given price.
Market Clearing Price: The market clearing price is another term for equilibrium price, as it refers to the price that clears or balances supply and demand.
"Equilibrium Price" appears in:
Subjects (1)
Study guides (3)
Practice Questions (10)
If the demand curve for a product shifts to the right while the supply curve remains unchanged, what is likely to happen to the equilibrium price and quantity?
If the government imposes a price ceiling below the equilibrium price in a market, what is likely to occur?
What happens when the price of a good is set above the equilibrium price in a market?
What happens to the equilibrium price and quantity when there is an increase in demand?
What happens to the equilibrium price and quantity when there is a decrease in demand?
What happens to the equilibrium price and quantity when there is a decrease in supply?
A natural disaster destroys a significant portion of agricultural crops. What is the likely impact on the equilibrium price and quantity of the affected crops?
A new government regulation imposes a tax on the production of a certain good. What is the likely impact on the equilibrium price and quantity?
What happens to the market when a price ceiling is set below the equilibrium price?
What happens to the market when a price floor is set below the equilibrium price?
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