Equilibrium price and quantity is often referred to as what?

Equilibrium price and quantity are referred to as the market clearing price and quantity because at this point, the quantity of goods consumers are willing to buy equals the quantity producers are willing to sell. This equilibrium indicates that there is no surplus or shortage in the market; every unit supplied is purchased by consumers, meaning that the market is functioning efficiently.

In context, when the market is in equilibrium, it effectively "clears" because there are no forces acting to push the price up or down. If the price were above this equilibrium level, a surplus would occur, leading to downward pressure on prices as producers would have excess inventory. Conversely, if the price were below the equilibrium, a shortage would arise, prompting prices to rise as demand exceeds supply. Thus, understanding this concept is essential in economics, as it highlights the balance achieved between market demand and supply.