Market equilibrium is the situation where, at a certain price level, the quantity demanded by consumers and the quantity supplied by producers of a particular commodity are equal. This means that the market is completely clear of excess supply and demand, and there isn't any tendency for change to either price or quantity. At market equilibrium, consumers are willing to pay the market price for the commodity in question and producers are willing and able to sell their goods at that market priceand at that quantity.

The price mechanism is a device used to determine the equilibrium price and equilibrium quantity of goods and also demonstrates how market forces work to achieve market equilibrium. The price mechanism assumes that there is no intervention on the part of the government and the market structure is a pure competition market. The following two diagrams demonstrate how market forces work to...