Market Equilibrium

Integrating the concepts of demand and supply establishes a framework for understanding how they interact to determine market prices and quantities for all goods and services. When quantity demanded and quantity supplied are in perfect balance at a given price, the product market is said to be in equilibrium. An equilibrium is stable when underlying demand and supply conditions are expected to remain stationary in the foreseeable future. When underlying demand and supply are dynamic rather than constant, a change in current market prices and quantities is likely. A temporary market equilibrium of this type is often referred to as an unstable equilibrium. To understand the forces that drive market prices and quantities either up or down to achieve equilibrium, the concepts of surplus and shortage must be introduced.

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