Equilibrium

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In common usage, equilibrium refers to a point of equality or balance. In economics, equilibrium occurs at the price at which the quantity supplied equals the quantity demanded. It is illustrated by the point where the supply and demand curves intersect.

The equilibrium quantity is the quantity supplied and demanded at the equilibrium price. It is represented graphically by the horizontal distance between the vertical axis and the supply and demand curves at the equilibrium price.

The equilibrium price is the price at which the quantity supplied equals the quantity demanded.

The market price is the price actually charged in the marketplace. It may or may not be the same as the equilibrium price.

A surplus is the amount by which the quantity supplied exceeds the quantity demanded. A surplus occurs when the market price is above the equilibrium price. A surplus is also called excess supply.

A shortage is the amount by which the quantity demanded exceeds the quantity supplied. A shortage occurs when the market price is below the equilibrium price. A shortage is also called excess demand.

Price of a hamburger Quantity of hamburgers supplied Quantity of hamburgers demanded
$5 5 1 Surplus
$4 4 2 Surplus
$3 3 3 Equilibrium
$2 2 4 Shortage
$1 1 5 Shortage
Table 4. An example of a using supply and demand schedules to determine whether a market is in equilibrium or has a shortage or surplus.



Figure 9. An illustration of equilibrium.