What is market clearing?

In economics, market clearing is the process by which, in an economic market, the supply of whatever is traded is equated to the demand so that there is no excess supply or demand, ensuring that there is neither a surplus nor a shortage.

What is market-clearing theory?

The market-clearing theory states that prices in a free market tend towards equilibrium, where the quantity of goods or services supplied equals the quantity demanded. The theory assumes that prices adjust quickly to any changes in supply or demand, meaning that markets can reach equilibrium instantaneously.

How do economic indicators affect market clearing?

When economic indicators suggest an upswing in a country's economy, demand for that currency may surge, causing its price to rise. As this higher price attracts more sellers, the market moves toward a new clearing price where demand equals supply. Supply and demand: The most fundamental factors affecting market clearing are supply and demand.

Does market clearing occur if supply exceeds demand?

In both cases, market clearing does not occur because either supply exceeds demand or demand outstrips supply. Theorists who support the idea that market clearing is a natural state for an economy argue that it is in the best interests of everyone for the economy to be in equilibrium. However, this may not always be true.