*X*, the decisions of buyers

*interact simultaneously*with the decisions of sellers. When the demand for good

*X*equals the supply of good

*X*, the market for good

*X*is said to be in

**equilibrium**. Associated with any market equilibrium will be an

**equilibrium quantity**and an

**equilibrium price**. The equilibrium quantity of good

*X*is that quantity for which the quantity demanded of good

*X*exactly equals the quantity supplied of good

*X*. The equilibrium price for good

*X*is that price per unit of good

*X*that allows the market to “clear”; that is, the price for which the quantity demanded of good

*X*exactly equals the quantity supplied of good

*X*. The determination of equilibrium quantity and price, known as

**equilibrium analysis**, can be achieved in two different ways: by simultaneously solving the algebraic equations for demand and supply or by combining the demand and supply curves in a single graph and determining the equilibrium price and quantity graphically.

**The algebraic approach to equilibrium**. The algebraic approach to equilibrium analysis is to solve, simultaneously, the algebraic equations for demand and supply. In the example given above, the demand equation for good *X* was

and the supply equation for good *X* was

*X* is found to be $2. Substituting the equilibrium price of 2 into the rewritten supply equation for good *X*, one has:

*X*.

**A graphical depiction of equilibrium**. The graphical approach to equilibrium analysis is illustrated in Figure *X*, and the equilibrium price is $2 per unit of good *X*. This result is the same as the one obtained by simultaneously solving the algebraic equations for demand and supply.

A price of $2 and a quantity of 4 units of *X* are the equilibrium price and quantity only when the demand and supply for good *X* are exactly as depicted in Figure *D* _{A} to *D* _{B}, leads to a *decrease* in both the equilibrium price and quantity of good *X*, while a shift to the *right* of the demand curve, from *D* _{A} to *D* _{C}, leads to an *increase* in both the equilibrium price and quantity of good *X*, assuming supply is held constant‐the *ceteris paribus* assumption. In Figure *left* of the *supply* curve, from *S* _{A} to *S* _{B}, leads to an *increase* in the equilibrium price of good *X* but a *decrease* in the equilibrium quantity of good *X*, assuming demand is held constant. A shift to the *right* of the supply curve, from *S* _{A} to *S* _{C}, leads to a *decrease* in the equilibrium price of good *X* but an *increase* in the equilibrium quantity of good *X*, again assuming that demand is held constant.