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The economic equilibriumThe answer is that the forces of supply and demand operate through the market toproduce an equilibrium price and quantity, or market equilibrium. The market equilibriumcomes at that equilibrium price and quantity where the supply and demand forces are in balance.It is understood that equilibrium exists when the intentions of buyers coincide with those ofsellers regarding price and quantity. At equilibrium, price and quantity tend to stay the same, aslong other things remain equal.Let us work through in Table 1 to see how supply and demand determine a marketequilibrium (2). The price at which the quantity demanded equals the quantity supplied is calledequilibrium price. At the equilibrium price of 4 euro, there is no tendency for price to rise or fall,and stockpiles are neither growing nor declining. We also say that 4 euro is the market-clearingprice. This denotes that all supply and demand orders are filled, the books are “cleared” oforders, and demanders and suppliers are satisfied. Thus an equilibrium price can be maintained.Any price that is not an equilibrium price cannot be maintained for long, since there are basicforces at work to stimulate a change in price.Any other price is called disequilibrium price: the price at which quantity demandeddoes not equal quantity supplied, and price will be changing. A market that exhibits either excessdemand (shortage) or excess supply (surplus) is said to be in a state of disequilibrium. Excessdemand (quantity demanded exceeds quantity supplied) end excess supply (quantity suppliedexceeds quantity demanded) causes an upward pressure on price.Anything that must be true if equilibrium is to be obtained is called an equilibriumcondition. In to competitive market, the equality of quantity demanded and quantity supplied isan equilibrium condition.PossiblepricesPTable 1. Combining demand and supplyQuantitydemandedQ dQuantitysuppliedQ oSurplus +Shortage-Pressureon price8 10 90 + 80 Downward7 20 80 + 60 Downward6 30 70 + 40 Downward5 40 60 + 20 Downward4 50 50 0 Neutral3 60 40 - 20 Upward2 70 30 - 40 Upward1 80 20 - 60 Upward0 90 10 - 80 UpwardP87654321Fig.1. Market equilibriumDSurplusEShortageSEquilibriumpoint0 20 40 60 80 QWe show market equilibrium graphically in Figure 1. We find the market by looking forthe price at which quantity demand equals quantity supplied. The equilibrium price comes at theintersection of the supply and demand curves, at point E. At too low price there is a shortage andprice tends to rise. Too high a price produces a surplus, which depress price (1).In the algebra of supply – demand analysis, suppose in a certain the demand schedule ishave a system by the linear equation: Q d = a - bP and Q o = a + bP, where Q d is the demandedquantity, Q o is the supplied quantity and a and b are positive constants: graphically, acorresponds to the intercept of the demand-supply curves and b is the negative/positive demandsupplycurves slope. The condition of equilibrium it: Q o = Q d = Q E . In example, Q d = 90 - 10Pand Q o = 10 + 10P ↔ 90 - 10P = 10 + 10P ↔ P = 4 and Q E = 50.The analysis of the supply-and-demand apparatus can do much more than tell us about. Itcan also be used to predict the impact of changes in economic conditions on prices and33