MARKET EQUILIBRIUM is the point where the quantity of a commodity demanded by consumers at the prevailing price is exactly matched by the quantity which sellers wish to sell.     

Equilibrium will not change as long as  all factors governing demand and supply remain the same (Ceteris Paribus).

If this is the case then we say that equilibrium is stable. That is any movement away from the equilibrium price / quantity automatically initiates a return to equilibrium.

THE MARKET WILL ALWAYS GO TOWARD EQUILIBRIUM. Market forces (supply and demand) will push the price toward the equilibrium price.

EXCESS SUPPLY (A SURPLUS)    A situation in which, at a particular price, the quantity which the seller wishes to sell exceeds that which buyers wish to buy.

A surplus occurs when the market price is set too high.

In this situation the quantity supplied is more than the quantity demanded.

Producers will be unable to sell all of the products at this price.

Producers will lower the price to sell their excess stock.

As the price decreases the quantity supplied decreases and the quantity demanded increases.

The market will return to the equilibrium price and quantity.

In the eqample the price for DVD's will fall from $35 to $30 and the QS of DVD's will decrease from 45 000 to 30 000 and the QD will increase from 20 000 to 30 000 - returning to the equilibrium price and quantity.

EXCESS DEMAND (A SHORTAGE)  - A situation in which at a particular price, the quantity that buyers wish to buy exceeds that which sellers wish to sell.

A shortage occurs when the market price is too low.

In this situation the quantity demanded is more than the quantity supplied.

Consumers will be unable to buy all the products they want at that price so they will bid the price up.

Producers will increase the price because they will be able to get more profit.

As the price increases the quantity supplied increases and the quantity demanded decreases.

The market will return to the equilibrium price and quantity.

In the eqample the price for DVD's will increase from $25 to $30 and the QS of DVD's will increase from
15 000 to 30 000 and the QD will decrease from 40 000 to 30 000 - returning to the equilibrium price and quantity.