What is the market clearing condition for equilibrium?

What is the market clearing condition for equilibrium?

A market-clearing price is the price of a good or service at which quantity supplied is equal to quantity demanded, also called the equilibrium price. The theory claims that markets tend to move toward this price.

Why is equilibrium called the market clearing price?

Equilibrium price is also called market clearing price because at this price the exact quantity that producers take to market will be bought by consumers, and there will be nothing ‘left over’.

What are the conditions for market clearing?

Market clearing occurs in those market situations in which the amount demanded by consumers equals the amount supplied by firms. In market clearing the equilibrium point has its corresponding equilibrium quantity and an equilibrium price.

How is the market clearing price determined?

Clearing price is the equilibrium monetary value of a traded security, asset, or good. This price is determined by the bid-ask process of buyers and sellers, or more broadly, by the interaction of supply and demand forces. Clearing prices are most stable in a liquid market.

What is true of a good at a market clearing price?

What is true of a good at a market clearing price? There is neither a shortage nor a surplus of the good. The quantity of a good demanded is equal to the quantity supplied.

When the price is below the market clearing price?

If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a shortage. The market is not clear. It is in shortage. Market price will rise because of this shortage.

When the price is above the market clearing price?

If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. Market price will fall. Example: if you are the producer, you have a lot of excess inventory that cannot sell.