The equilibrium price clears the market; it is the price at which___________

Step 1: Analyze the question The question asks what happens at the equilibrium price, the price that "clears the market."

Step 2: The concept Equilibrium price is the price at which the quantity demanded equals the quantity supplied (Qd = Qs).

• If the price is above equilibrium, there is a surplus (excess supply), so Qs > Qd.
• If the price is below equilibrium, there is a shortage (excess demand), so Qd > Qs.
• At equilibrium, there is neither a surplus nor a shortage. So excess demand = Qd − Qs = 0, and the market "clears."

Step 3: Evaluate the options

• A. Everything is sold: This sounds close, but it isn't the precise definition. Everything offered can be sold at other prices too (for example, if a seller cuts the price very low). The key idea is that the quantity buyers want equals the quantity sellers want to supply.
• B. Buyers spend all their money: This has nothing to do with equilibrium. Buyers have budgets, but equilibrium is not defined by exhausting them.
• C. Excess demand is zero: This is correct. At equilibrium, Qd = Qs, so excess demand (Qd − Qs) equals zero. Excess supply is also zero.
• D. None of the above: Incorrect, because C is correct.

Step 4: Answer The correct option is C. Excess demand is zero.

Exam tip: Remember "Equilibrium = Qd = Qs = no shortage, no surplus." When you see "market clears," think "excess demand and excess supply are both zero." Be careful with options like A, which sound right but are less precise than the formal definition.