Market equilibrium is defined as a situation where the plans of all consumers and firms in the market match and the market clears. In equilibrium, the aggregate quantity that all firms wish to sell equals the quantity that all consumers in the market wish to buy. In other words, market supply equals market demand.

The price at which equilibrium is reached is called the equilibrium price and the quantity bought and sold at this price is called the equilibrium quantity. The equilibrium pair (p*, q*) satisfies the condition: $q^{D}$(p*) = $q^{S}$(p*), where $q^{D}$ represents market demand and $q^{S}$ represents market supply.

At the equilibrium price, the market clears completely. There is neither excess demand nor excess supply, as all consumers are able to buy the quantity they desire and all firms are able to sell the quantity they wish to sell.