Market equilibrium is a state in which the market supply and demand are balanced, and as a result, prices become stable. It is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. In other words, it is the point at which the quantity demanded equals the quantity supplied. The equilibrium price is the only price where the plans of consumers and producers agree, and this common quantity is called the equilibrium quantity.

Market equilibrium is characterized by three main features: the behavior of agents is consistent, there are no incentives for agents to change behavior, and a dynamic process governs equilibrium outcomes. However, markets are never in perfect equilibrium, although prices do tend toward it. Equilibrium can change if there is a change in demand or supply conditions. For example, an increase in supply will disrupt the equilibrium, leading to lower prices. Eventually, a new equilibrium will be attained in most markets.

Disequilibrium characterizes a market that is not in equilibrium. Disequilibrium can occur briefly or over an extended period of time. Typically in financial markets, it either results in a shortage or a surplus. In a shortage, sellers will supply a smaller quantity of goods than buyers are willing to purchase, resulting in a price increase. In a surplus, suppliers will produce a greater quantity than consumers are willing to purchase, resulting in a price decrease.

In summary, market equilibrium is a state in which the market supply and demand are balanced, and prices become stable. It is the point at which the quantity demanded equals the quantity supplied. Disequilibrium characterizes a market that is not in equilibrium, and it can result in a shortage or a surplus.