Supply and Demand

Market Equilibrium

Market equilibrium (market clearing) occurs when the quantity demanded equals the quantity supplied at the intersection of the supply and demand curves.

Supply and demand drive the market. Market equilibrium, also called the market clearing point, is the price at which the quantity of a good consumers are willing to buy (demand) equals the quantity of that good that producers are willing to offer for sale (supply). The price at which quantity demanded equals quantity supplied is called the equilibrium price and is represented graphically by the point where the demand curve for a product crosses the supply curve. At this point, the market is "cleared," because at the equilibrium price, consumers will buy all of the units that producers are willing to offer for sale. Producers will offer for sale all of the units that consumers are willing and able to buy.

For example, when donuts cost $3, consumers are willing to buy 27 donuts and producers are willing to supply 27 donuts. The market is in equilibrium: all donuts produced are consumed. No producer has donuts it cannot sell, and no consumer wishes to buy additional donuts at the same price level.
The demand curve D and the supply curve S appear together on the graph. Market equilibrium occurs at the intersection of the two curves, at equilibrium price PE and equilibrium quantity QE. Market equilibrium occurs at the price where quantity demanded equals quantity supplied. At this point, the market is "cleared," because at the equilibrium price, consumers will buy all the units that producers are willing to offer for sale and producers will offer for sale all of the units that consumers are willing and able to buy.