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EQUILIBRIUM

We have previously described what supply and demand are and how the price fluctuates in order that the quantity demanded and the quantity supplied level out. Thus when these two are equal we reach a desired outcome which economists call equilibrium. 
At this point the allocation of goods/resources is at its most efficient because at the given price producers are selling all the goods that they have produced and buyers are getting all the goods they have demanded. In this state the market benefits as a whole because when an equilibrium is reached the number of transactions being made is the highest possible.
Picture the case of a shop that sells TVs. As you can see in the table below, the higher the price the lower the quantity demanded but the higher the quantity supplied and vice versa.

In each case the amount of transactions being made can be expressed by the formula:

 Number of Transactions = min(Quantity Demanded, Quantity Supplied)

 This is obviously happening because producers are only being able to sell what is demanded and buyers are only able to buy what is supplied. Even though the quantity demanded and the quantity supplied exceed 30(although not simultaneously) in the other cases we conclude that the point of equilibrium(the one with the most transactions) is when quantity demanded and supplied is 30 TVs, at the price of $80. This price is called the price of equilibrium.
However there are many cases when the producers and/or buyers are badly informed, resulting in differences between the quantity demanded and the quantity supplied. This phenomena is called disequilibrium. We will take a closer look at what is represents in the next post.

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