What is equilibrium price in a market?

Equilibrium price in a market is defined as the price at which the quantity of a good or service that consumers are willing to buy (quantity demanded) equals the quantity that producers are willing to sell (quantity supplied). At this price level, the forces of supply and demand are balanced, and there is no tendency for the price to change, assuming other factors remain constant.

When the market reaches equilibrium, both consumers and producers are satisfied: consumers can purchase the amount they desire at that price, and sellers are able to sell their desired output without any surplus or shortage in the market. This concept is fundamental in economics as it illustrates how markets function under competitive conditions where prices adjust to reach a state of balance.

Other options describe scenarios that do not reflect market equilibrium. When supply exceeds demand, there is usually a surplus, leading to downward pressure on prices, and when demand exceeds supply, there is a shortage that typically drives prices up. Prices set by government regulation may not reflect the equilibrium price as they could distort the market dynamics, leading to inefficiencies. Understanding equilibrium price is crucial for analyzing market behavior and making informed decisions in economics.