Equilibrium
Definition
Equilibrium refers to a state of balance or stability in the market where the quantity demanded by consumers is equal to the quantity supplied by producers.
Analogy
Imagine a seesaw with two equally weighted people on each end. When they are perfectly balanced, neither person is higher or lower than the other. This represents equilibrium in the market, where supply and demand are perfectly balanced.
Related terms
Surplus: A surplus occurs when the quantity supplied exceeds the quantity demanded, resulting in excess inventory or unsold goods.
Shortage: A shortage happens when the quantity demanded exceeds the quantity supplied, leading to insufficient supply to meet consumer demand.
Price Elasticity of Demand: Price elasticity of demand measures how sensitive consumers are to changes in price. It determines whether a change in price will result in a significant change in quantity demanded.
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