Competitive equilibrium

Competitive equilibrium is like a big playground game. Imagine you and your friends all want to play with the same toy. But there is only one toy, so you have to figure out how to share it fairly. This is what happens in the market, where people and companies all want the same things but there is only a limited amount of them.

In this game, there are two important players: buyers and sellers. Buyers are people who want to buy things, like toys or candy. Sellers are people who have things to sell, like toys or candy.

When buyers and sellers get together in a market, they talk to each other to figure out how much things are worth. They negotiate to find the best price for both of them. This is called bargaining.

Sometimes, buyers and sellers don't agree on a price. They might think the toy is worth more or less than the other person. But eventually, they will agree on a price that works for both of them. This is called a market price.

When everyone in the market agrees on a price, it's called a competitive equilibrium. It's like everyone on the playground agreeing to a set of rules for sharing the toy. This is the fair and efficient way for buyers and sellers to exchange goods and services.

So, competitive equilibrium is like a big playground game where everyone agrees on the rules and plays fair to share the toys.