How is market equilibrium established?

• A. When demand exceeds supply
• B. When supply exceeds demand
• C. When quantity demanded equals quantity supplied
• D. When price levels fluctuate indefinitely

Answer: (C)

Market equilibrium is established when the quantity demanded by consumers equals the quantity supplied by producers. At this point, the market is said to be in balance, where there are no shortages or surpluses. This creates a stable price level as the forces of supply and demand are aligned.

When the quantity demanded matches the quantity supplied, it indicates that consumers are willing to buy exactly what producers are willing to sell at a particular price. If the price were to rise above this equilibrium level, the quantity supplied would exceed the quantity demanded, leading to excess supply or a surplus. Conversely, if the price were to drop below the equilibrium level, the quantity demanded would exceed the quantity supplied, creating excess demand or a shortage. Market forces typically push the prices back toward the equilibrium point, ensuring that the market remains efficient.