What defines competitive market equilibrium in microeconomics?

Competitive market equilibrium in microeconomics is defined as the point where demand equals supply.

In a competitive market, numerous buyers and sellers interact to trade goods or services. The concept of equilibrium refers to a state of balance, where there is no tendency for change. In the context of microeconomics, a competitive market reaches equilibrium when the quantity demanded by consumers equals the quantity supplied by producers. This is also known as the market-clearing condition, as it leaves no surplus or shortage in the market.

The equilibrium price, also known as the market-clearing price, is the price at which the quantity demanded equals the quantity supplied. At this price, every consumer who is willing to buy at this price can find a seller who is willing to sell, and vice versa. The equilibrium quantity is the amount of goods or services traded at the equilibrium price.

The law of demand states that, all else being equal, as the price of a good increases, the quantity demanded decreases. Conversely, the law of supply states that as the price of a good increases, the quantity supplied increases. These two laws interact to determine the equilibrium price and quantity in a competitive market.

If the price is above the equilibrium level, there will be a surplus, as the quantity supplied will exceed the quantity demanded. This will put downward pressure on the price, bringing it back towards equilibrium. If the price is below the equilibrium level, there will be a shortage, as the quantity demanded will exceed the quantity supplied. This will put upward pressure on the price, again bringing it back towards equilibrium.

In conclusion, competitive market equilibrium is a fundamental concept in microeconomics. It represents the point at which the market is in balance, with no tendency for change. This occurs when the quantity demanded equals the quantity supplied, resulting in the equilibrium price and quantity.