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Equilibrium Principle

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PPGPortal > Home > Concept Dictionary > D, E > Equilibrium Principle

Equilibrium Principle

One of the fundamental principles of economics. States that in a free market, prices adjust until the amount that people demand of a good is equal to the amount that is supplied. 

(Dwayne Benjamin, Toronto PPG 1002H)


The graphic below illustrates how market pressures cause prices to adjust until quantity supplied is equal to quantity demanded. The good in this model is apartments available for rent in a competitive market.

The market price for any good is found where the supply and demand curves intersect, or in other words, at the price where the quantity of goods demanded equals the quantity supplied. This price is called the "equilibrium price."



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