Mar 29, 2025

Market Equilibrium

• The point where SUPPLY meets DEMAND

How do I remember it?

• Think of market equilibrium as a "balancing scale." When supply (what businesses sell) and demand (what consumers buy) are perfectly balanced, the market is at equilibrium. At this point, there’s no shortage or surplus, and prices stay stable. 

Real world example

• For example, a cafe selling iced lattes.

$5 per latte, customers are happy to buy, and the shop makes just enough to meet demand. If the price goes up to $7, fewer people buy, leading to a surplus. If the price drops to $3, more people want to buy, but the shop can’t make enough, creating a shortage. The equilibrium price is where the shop sells exactly as many lattes as customers want to buy at $5.