The Point Where Supply and Demand Meet and Prices Are Set Is Called What?
It is called market equilibrium (the equilibrium point). At this point the quantity supplied equals the quantity demanded, and the price at which they match is the equilibrium price. There is no surplus or shortage at equilibrium.
The answer
The point where the supply curve and the demand curve intersect — where the amount producers want to sell exactly equals the amount consumers want to buy — is called market equilibrium, and the price at that point is the equilibrium price (sometimes called the market-clearing price). On a standard supply-and-demand graph, it is the single point where the upward-sloping supply line crosses the downward-sloping demand line.
At equilibrium, the market "clears": every unit that sellers offer at that price finds a buyer, and every buyer willing to pay that price gets a unit. Because quantity supplied equals quantity demanded, there is neither leftover stock (a surplus) nor unmet demand (a shortage). This self-correcting balance is why prices tend to settle at the equilibrium level.
Why the other options are wrong
Exam questions often surround "equilibrium" with related but incorrect terms:
- Surplus — A surplus (excess supply) happens when the price is set above equilibrium, so quantity supplied exceeds quantity demanded. It is a state of imbalance, not the meeting point.
- Shortage — A shortage (excess demand) happens when the price is below equilibrium, so quantity demanded exceeds quantity supplied. Again, this is disequilibrium.
- Marginal price / marginal cost — These describe the cost or price of one additional unit, not the intersection of the two curves.
- Elasticity — Elasticity measures how responsive quantity is to a change in price; it describes the shape of the curves, not their meeting point.
Only "equilibrium" names the exact point where supply meets demand and the price is set.
The bigger picture
Equilibrium is not permanent — it is a resting point that markets return to whenever the price drifts away from it. If price is too high, the resulting surplus pushes sellers to cut prices until the excess clears. If price is too low, the shortage lets sellers raise prices until demand and supply rebalance. This pressure is why economists describe equilibrium as stable.
The equilibrium point itself can move when a whole curve shifts:
- A demand shift (from changes in income, tastes, population, or the price of substitutes) moves the intersection along the supply curve. More demand raises both equilibrium price and quantity.
- A supply shift (from changes in input costs, technology, or the number of sellers) moves the intersection along the demand curve. More supply lowers price but raises quantity.
Understanding equilibrium is the foundation for nearly every other topic in microeconomics — price controls, taxes, subsidies, and market efficiency all describe what happens when the market is pushed away from, or settles back toward, the point where supply and demand meet.
| Equilibrium | At equilibrium price | Supplied = demanded | Market clears; no surplus or shortage |
| Surplus | Above equilibrium | Supplied > demanded | Excess goods; prices fall toward equilibrium |
| Shortage | Below equilibrium | Demanded > supplied | Unmet demand; prices rise toward equilibrium |
Frequently asked
What is market equilibrium in economics?
Market equilibrium is the point where the quantity of a good that consumers want to buy equals the quantity that producers want to sell. On a graph it is where the supply and demand curves intersect, and it sets the equilibrium price.
What happens when supply and demand are not equal?
If quantity supplied exceeds demand, a surplus forms and prices fall; if demand exceeds supply, a shortage forms and prices rise. These pressures push the price back toward the equilibrium level where the two are equal.
How is equilibrium price determined?
The equilibrium price is set where the supply and demand curves cross. It is the price at which the amount buyers are willing to purchase exactly matches the amount sellers are willing to provide, clearing the market with no leftover surplus or shortage.
What causes the equilibrium point to shift?
A shift in the entire demand curve (from changes in income, tastes, or substitute prices) or the supply curve (from changes in input costs, technology, or number of sellers) moves the intersection, changing the equilibrium price and quantity.
What is the difference between a surplus and a shortage?
A surplus is excess supply, occurring when the price is above equilibrium so sellers have unsold goods. A shortage is excess demand, occurring when the price is below equilibrium so buyers cannot find enough of the good.