Understanding how markets work and the role of prices within markets is an important key to being able to explain and predict economic behavior. In true markets, prices are determined by the interaction of buyers and sellers.
Equilibrium Price (or Market Clearing Price)
National Content Standards Addressed:
Standard 7: Markets
Markets exist when buyers and sellers interact. This interaction determines market price and thereby allocates scarce goods and services.
A market exists whenever buyers and sellers exchange goods and services.
Market prices are determined through the buying and selling decisions made by buyers and sellers.
The market clearing or equilibrium price for a good or service is the one price at which quantity supplied equals quantity demanded.