Market Equilibrium and Disequilibrium

Market equilibrium occurs when the quantity supplied equals the quantity demanded $Qs = Qd$. At this perfect balance point, both buyers and sellers are satisfied with the market price, and there's no pressure to change prices. You can spot equilibrium on a graph where the supply and demand curves intersect.

When markets fall out of balance, we call this market disequilibrium. Two main types exist: market surplus and market shortage. A market surplus happens when Qs > Qd (supply exceeds demand), often caused by price floors set above equilibrium. Conversely, a market shortage occurs when Qd > Qs (demand exceeds supply), typically resulting from price ceilings set below equilibrium.

Changes in either supply or demand shift the equilibrium point. When demand increases, both equilibrium price and quantity rise. When demand decreases, both equilibrium price and quantity fall. For supply changes, the effects are mixed: increased supply lowers prices but increases quantity, while decreased supply raises prices but reduces quantity.

💡 Think of market equilibrium like a seesaw that automatically balances. When something disrupts the balance (like a change in supply or demand), prices adjust until the seesaw is level again. This self-correcting mechanism is what economists call the "invisible hand" of the market.