C. Equilibrium

So far, we've looked at supply, we've looked at demand, and the main question that now arises is: "How do these two opposing forces of supply and demand shape the market?" Buyers want to buy as many goods as possible, as cheaply as possible. Sellers want to sell as many goods as possible, at the highest price possible. Obviously, they can't both have their way. How can we figure out what the price will be, and how many goods will be sold? In most cases, supply and demand reach some sort of compromise on the price and quantity of goods sold: the market price is the price at which buyers are willing to buy the same number of goods that sellers are willing to sell. This point is called market equilibrium. Because supply and demand can shift and change, equilibrium in a standard market is also fluid, responding to changes in either market force.

When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.
In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply.