The equilibrium price in economics is a fundamental concept where the market operates most efficiently. To understand it fully, consider the following explanation:
When demand equates supply, it indicates the price at which the quantity of goods consumers are willing to buy (demand) is exactly equal to the quantity of goods producers are willing to sell (supply). This is the point where the market reaches equilibrium. At this price, there is no excess supply or demand, meaning that resources are being used most effectively, and there is no pressure on the price to change.
In contrast:
If the price equals demand only, this would imply a scenario that doesn't exist in standard economic terms because equilibrium involves both supply and demand.
When demand is less than supply, it suggests a surplus in the market, leading to downward pressure on price as sellers attempt to clear excess stock.
If demand is greater than supply, it leads to a shortage, resulting in upward pressure on prices as consumers compete to buy the limited available goods.
Thus, at equilibrium price, demand equates supply, ensuring the market operates smoothly without surplus or shortage.