Thursday, September 14, 2017

What is market equilibrium?

In a model where expectations must be formed by economic agents (households and firms), equilibrium in a market is defined to be a situation where there is no excess supply or demand in the market and price expectations are correct.

A market reaches equilibrium when quantity demanded equals quantity supplied. It occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price.
The concept of equilibrium is employed in both the physical and social sciences, and it is of central importance in economic analysis.

In general a system is in equilibrium when all forces at work within the system are cancelled by others, resulting is a stable, balanced, or unchanging situation.

A market finds equilibrium through the independent actions of thousands, or even millions, of buyers and sellers.

In one sense, the market is personal because each consumer and each producer makes a personal decision about how much to buy or sell at given price.
What is market equilibrium?

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