Meaning of market equilibrium.

Market Equilibrium... 

 In common sense, equilibrium refers to the situation of rest or relaxation or free from tension. It also refers to the situation in which the two opposite forces are equal to each other. In economics, market equilibrium refers to the situation in which market demand for the commodity is equal to the market supply of the commodity. The point where market demand is equal to the market supply of the commodity is called equilibrium point which determines equilibrium price and quantity in the market. The process can be explained with the help of following schedule and diagram:


The table shows that when the price is Rs. 6 per unit, Qty. Demand is equal to Qty. Supply. So the equilibrium price is Rs. 6 and equilibrium quantity is 30 units. 

If we present the following schedule in the form of diagram, we will get a curve and we can easily understand the meaning of market equilibrium. 

Demand curve (DD) and supply curve (SS) intersect at point Exactly, which is the equilibrium point. The equilibrium price and quantity so determined are OPEN and OQ respectively. At any point above equilibrium point, there is excess supply and at any point below equilibrium point, there is excess demand. Thus the process of increase and decrease in price continue until demand and supply are equal. In this way, the interaction between market demand and market supply of the commodity determines the equilibrium price and quantity of the commodity in the market. 

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