General Market Clearing
Categories: Trading
Out with the old and in with the new, mom says.
Out with excess supply and demand, in with the general market clearing, economists say.
General market clearing happens when the quantity of a good or service that’s produced (and sold at a certain price point) is the same quantity that's demanded and purchased. General market clearing is when the market converges to equilibrium, where there’s no excess supply or excess demand.
The idea of the “invisible hand” is that it’s always trying to clear the market. When there’s excess supply, firms will lower prices, so demand goes up and gets all that extra supply off the shelves. Market cleared. When there’s excess demand, firms will raise prices, causing demand to drop, which gets rid of excess demand. Market cleared again.
A cleared market is a clean market. How’s your desk looking?
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