The market clearing price at which the quantity demanded by buyers equals the quantity supplied by sellers is called?

• A. Clearing Price
• B. Equilibrium Price
• C. Market Price
• D. Price Equilibrium

Answer: (D)

The market reaches a balance at the price where buyers’ desired quantity exactly matches sellers’ willing supply. This point is the price equilibrium, the price that clears the market. At this level, the plans of buyers and sellers align so there is no inherent pressure for the price to move up or down. If the price rose above this point, a surplus would occur because suppliers would be willing to produce more than buyers want to purchase; if it fell below, a shortage would happen because buyers would want to buy more than producers want to sell. Because the two sides intersect at this price, it represents the true balancing point of supply and demand. Other terms like clearing price describe the same idea, but price equilibrium conveys the balancing condition explicitly.