equilibrium price
The price at which the quantity of a good supplied equals the quantity demanded, clearing the market with no surplus or shortage.
Example
“At the equilibrium price of $5 per bushel, farmers wanted to sell exactly as many bushels as buyers wanted to buy.”
Memory Tip
EQUILIBRIUM price = the sweet spot where supply equals demand. The market 'clears'.
Why It Matters
Understanding equilibrium price helps you recognize when prices are likely to change based on supply and demand imbalances. This knowledge can guide your purchasing decisions, such as buying items when prices are temporarily high due to scarcity or waiting for prices to stabilize when markets are in flux.
Common Misconception
Many people believe that equilibrium price is always the lowest price or the fairest price, but it is simply the price where supply meets demand at a particular moment in time. The equilibrium price can be very high or very low depending entirely on market conditions, and it does not inherently reflect moral fairness or consumer welfare.
In Practice
Consider a coffee shop that sells cups of coffee for $4 each and finds that they sell exactly 100 cups per day while having 100 cups available. If they tried raising the price to $5, they might sell only 80 cups while having 20 left unsold, creating a surplus that pushes them back toward $4 where supply and demand balance perfectly.
Etymology
EQUILIBRIUM (balance, equal forces) PRICE. The PRICE at which supply and demand are in BALANCE (equilibrium).
Common Misspellings
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