Equilibrium market prices

• Equilibrium


  Supply = Demand
• At equilibrium, price has no tendency to change. This is also known as the market clearing price.
• Excess demand


  The quantity demanded is larger than the quantity supplied (disequilibrium).

  
  

  Demand price does not equal supply price. Therefore there is a shortage in the market.

  
  

  Consequently, price pushed back up through the use of market forces and therefore so does supply. This contracts demand back to the equilibrium point.
• Excess supply


  The quantity supplied is greater than the quantity demanded (disequilibrium).

  Consequently, price will fall back down, and so supply will contract. Demand will expand due to lower prices.
• Shifts cause new market equilibriums.