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Market-clearing equilibrium occurs at the intersection of the supply and demand curves, where quantity demanded equals quantity supplied.
Supply and demand is a microeconomic model of how market prices are determined. In a perfectly competitive market, the unit price adjusts until the market-clearing price is reached, where the quantity demanded equals the quantity supplied (an equilibrium for both price and traded quantity). The model is represented graphically by a supply curve (showing how much producers offer at each price) and a demand curve (showing how much consumers are willing and able to buy at each price).
Market-clearing equilibrium occurs at the intersection of the supply and demand curves, where quantity demanded equals quantity supplied.
Supply curves are typically derived from marginal cost under perfect competition; shifts in supply occur when determinants like input prices, technology, expectations, or the number of suppliers change.
Demand curves are generally downward-sloping under the law of demand; shifts in demand occur when determinants like income, tastes, prices of substitutes/complements, expectations, or the number of buyers change.
When firms or buyers have market power, the simple supply-and-demand framework may fail and more complex models (e.g., oligopoly, monopoly, or monopsony) are needed.
At the macro level, aggregation can undermine the usual “law of demand” intuition; the Sonnenschein–Mantel–Debreu theorem shows aggregate demand may not inherit individual demand properties, affecting equilibrium predictions.
The price at which quantity demanded equals quantity supplied, so the market clears.
A graphical representation (or function) showing the quantity supplied at each price, typically based on marginal cost under perfect competition.
A graphical representation (or function) showing the quantity demanded at each price, typically downward-sloping under the law of demand.
A change in demand that moves the entire demand curve (e.g., due to income, tastes, substitute/complement prices, expectations, or number of buyers), changing equilibrium price and quantity.
A change in supply that moves the entire supply curve (e.g., due to input prices, technology, expectations, or number of suppliers), changing equilibrium price and quantity in opposite directions.
A market structure where firms and buyers are price takers and cannot influence the market price through their individual decisions.
A result showing that aggregate excess demand functions can take almost any shape, so aggregate demand need not be downward-sloping even if individuals follow the law of demand.
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