Equilibrium is a condition of desire which one does not want to change. It maximizes the profit of producers and satisfaction of buyers and hence total welfare is maximized at this level.

In a competitive market, demand and supply forces determine the equilibrium. As no intervention of government or any other third party is there, equilibrium is achieved when demand supply meets each other.

At given level of price, quantity demanded equals quantity supplied. This level of price becomes equilibrium price of the good and the quantity demanded (and supplied) at this price becomes equilibrium output.