Equilibrium is the state in which demand (the desire to purchase goods) and supply (the desire to sell goods) are equal and stable in the market.
Equilibrium is a state where intentions of buyer (demand) and seller (supply) are in agreement. At this time, a transaction (exchange of goods and money) is established. When a transaction is established, the equilibrium price and the equilibrium transaction volume are decided.
Let's grasp the "equilibrium" state using a balance scale.
Demand and supply are packed on the left and right dishes. Equilibrium means that the rod of the balance is in a horizontal state. We are satisfied that all market participants (seller and buyer) trade at equilibrium price for the transaction established here. This is called optimal.
Transaction is the mechanism of exchanging money with products (goods and services). It has evolved the barter which had been done long ago (the mechanism of exchanging the product of Mr. A with the product of Mr. B).
When barter is done, the utility (satisfaction) of both A and B is raised.
If trading is done in the market, the utility of all market participants will be enhanced.
The market economy system is an economic system where resource allocation and income distribution are carried out by people's free transactions.
Market can be divided into goods market and labor market. A goods market is a market that deals with products and plays a role of resource allocation. On the other hand, the labor market is a market that deals with labor and it plays a role of income distribution.
In the market, companies (producers) serve as consumers of labor and as suppliers of goods and services. On the other hand, households (consumers) are consumers of goods and services, and also serve as suppliers of labor force.
The optimum in the market economy system is the state where the goods market and the labor market are in equilibrium. In other words, it is to achieve maximum production amount (total production amount that used scarce resource effectively) in resource allocation and equally distributed (evenly distribute total income) in income distribution.