The point where supply and demand meet and prices are set is called

The point where supply and demand meet and prices are set is called

A. coordination.

B. correspondence.

C. equality.

D. equilibrium.

Answer: D. equilibrium.

Equilibrium in economics is a state whereby a certain good or a service in the market has achieved stability in that the supply and the demand rates for it have reached an equal and stable measure. It is a core concept in any market context and helps shed light on the phenomenon of price determination. The endpoint or the state that the market achieves when the quantity of a particular product which suppliers are ready to supply at a particular price is equal to the quantity that consumers are ready to demand at a given price is referred to as market equilibrium.

For instance, suppose you are provided with a market for smartphones. If the equilibrium price is $500, it implies that at this price, the quantity of smartphones manufacturers are willing to supply equals the quantity of smartphones consumers are willing to buy. If the price were higher, for instance, $600, then the supplies would be more than willing to produce more phones, yet the demands would not be sufficient enough, hence we have a case of surplus. On the same note, if the price was lower, for instance, $400 more people would wish to purchase phones, but the manufacturers would be less willing to supply phones hence experiencing a shortage. The market always reverts to this state as the aforementioned imbalances are corrected. The same can be explained by, for example, the labour market situation. The reference wage is the average wage at which the supply of a particular worker is equivalent to the demand for a particular job by employers. If the wage is set very high, then there are few employees available for the number of jobs available and vice versa if it is set low then there are few jobs available for the number of employees who are willing to work. The balance concept gives an understanding of why the prices and the wages change with supply and demand and why in the free markets they tend to reach some quantitative level.