What does Equilibrium refer to in economic terms?

In economic terms, equilibrium refers to a state where demand and supply are equal. This means that at the equilibrium price, the quantity of goods that consumers want to buy is exactly equal to the quantity that producers want to sell. This balance means there are no inherent forces pushing the market price to change; there is a state of stability where buyers and sellers are satisfied with the price and quantity being exchanged.

When the market is at equilibrium, resources are optimally allocated, and there is no surplus or shortage of goods. If there were a surplus, it would indicate that supply exceeds demand, leading to downward pressure on prices. Conversely, if demand exceeds supply, there would be a shortage, leading to upward pressure on prices. Thus, equilibrium is essential for understanding how markets operate efficiently, ensuring that resources are not wasted and that consumer needs are met adequately.