3.5 The Determination of Equilibrium Market Prices

What is the difference between equilibrium and disequilibrium in a market?

Equilibrium occurs when market supply equals market demand

Disequilibrium when there is either excess supply of excess demand 

Why do excess demand and supply lead to change in price?

Excess demand leads to upward pressure on price, because consumers compete to purchase the limited goods available

Excess supply lead to downward pressure on price, because producers want to sell excess stock, often by lowering prices

How is the equilibrium price determined in a market economy?

The equilibrium price is determined through the interaction of demand and supply

What is it meant by "equilibrium price" in a market?

When the quantity of a good or service demanded is equal to the quantity of a good service supplied