Market Clearing Prices in Economics
https://www.investopedia.com/terms/c/clearingprice.asp
During our studies of market clearing prices in class, we had multiple buyers and multiple sellers. We would adjust the prices until the market was cleared. We increased prices that had too many interested buyers in the preferred sellers graph. This process is similar to how a Supply and Demand chart is used in economics, which the linked article talks about.
The article discusses how price clearing prices are chosen in trading securities or assets. Buyers are trying to buy something for as little as possible and sellers are trying to sell something for as much as possible. Eventually, the buyers and sellers will agree on prices known as the market clearing prices. In economics, the supply curve is upward sloping and the demand curve is downward sloping, so the intersection point shows the equilibrium price and quantity (market clearing):
If prices are too high, then there is a surplus that the seller cannot sell. If the prices are too low, then there is a demand that the seller cannot meet which leads to a shortage.
The demand could signal to the seller how to adjust prices as we have seen in class. If there is a constricted set, then there is too much demand (a shortage) for that seller. If we look at the set of buyers and sellers not in the constricted set, then there is a surplus of sellers. In our examples in class, there was an equal number of sellers and buyers, but if they were unequal then shortages and surpluses could happen as well. By adjusting the prices based on the shortages/surpluses, the market will eventually reach a price that both buyers and sellers agree on.