Another term for "equilibrium price" in economics is "market-clearing price," which is a price point at which the market achieves a balance in terms of supply and demand. When the market reaches a market-clearing price, it does not generate a surplus or shortage.Continue Reading
In an ideal economic model where there is competition and no market failures are present, a market-clearing price symbolizes an equilibrium in which there is an efficient allocation of resources. A market-clearing price can also be graphically shown by using a supply and demand chart. The market-clearing price is achieved at the point at which the supply and demand curves intersect.
In a market, a price that is anywhere other than the intersect of the supply and demand curves cannot be considered a market-clearing or equilibrium price point. When the price is set too high, the supply of goods exceed the demand that is generated by the market, causing an excess supply to be left over. The converse is true at a price point that is lower than the market-clearing price. At this price point, demand exceeds supply, causing a shortage. Both scenarios generate pressure on the market's price, causing it to either decrease or increase until equilibrium is achieved.Learn more about Economics