Market equilibrium is decided on demand and supply forces.

Market equilibrium can be explained in three ways

• By demand and supply schedules.
• By graphs.
• By equations.

Concepts which are related to market equilibrium can be shown as follows

• Excess demand.
• Excess supply
• Excess demand price
• Excess supply price
• Consumer’s surplus
• Producer’s surplus

• Demand exceeds supply at a given price is termed excess demand.
• Supply exceeds demand at a given price is termed excess supply.
• Excess supply price occurs below the market equilibrium price, .
• Excess supply price occurs above the market equilibrium price .
• The difference between the price which the consumers are willing to pay for equilibrium quantity and actual price which they pay is explained as consumer’s surplus.

• The difference between the producers minimum expected price and the actual price which they get is termed, producer’s surplus.

Consumer’s surplus and producer’s surplus can be illustrated with following graphs.

According to the above graph the surface area of BDF shows consumer’s surplus.
The consumer’s surplus can be computed using the following formula.

Consumer’s surplus =  {  (Maximum price-equilibrium price x quilibrium Quantity) / 2 }

According to the above graph the surface area of ADF shows producer’s surplus.
Producers surplus can be computed using following formula

Producer’s surplus = { (Equilibrium price – minimum price) quilibrium Quantity / 2 }

Market equilibrium can be changed with the changes of either demand or supply of the market or changes of supply of the market or changes of both demand and supply

This can be illustrated through the following chart Instances of changes in market equilibrium

Changes of equilibrium with market forces can be explained through graphical
presentation
Examples of changes in equilibrium with decrease in demand while supply is constant

E- equilibrium before change in demand.
E1 – equilibrium after change in demand