What does equilibrium in microeconomics refer to?

Equilibrium in microeconomics refers to a state of balance between supply and demand. This concept is foundational in understanding how markets function. At equilibrium, the quantity of a good or service that consumers are willing to purchase equals the quantity that producers are willing to sell at a specific price. This balance means that there is no inherent pressure for the price to change, as market forces are stable.

When demand increases or decreases, or if supply changes, the market will shift to a new equilibrium point, where the new price and quantity will again reflect the balance between what consumers want to buy and what producers want to sell. This dynamic nature of markets illustrates how equilibrium can change due to shifts in external factors, but the core idea remains rooted in the balance between supply and demand. This understanding is crucial for analyzing various economic scenarios and governmental policies affecting markets.