Fundamentals Domain – Economics Practice Test

Market equilibrium refers to the condition in a market where the quantity of a good or service demanded by consumers is equal to the quantity supplied by producers at a specific price level. This balance creates a situation where there is no excess supply or shortage in the market. In simpler terms, at market equilibrium, the forces of supply and demand are balanced, resulting in a stable price for the good or service.

When the market is at equilibrium, there are neither pressure on prices to increase nor decrease, as all willing buyers can find goods and all willing sellers can sell their goods at that price. As a result, the market clears without any leftover stocks or unmet demand.

Understanding market equilibrium is crucial for analyzing how changes in external factors (such as shifts in demand or supply) can affect prices and quantities in the market. It provides insight into market dynamics and helps illustrate the importance of interaction between buyers and sellers in determining market outcomes.