When competition is free, what concept describes the relationship where supply equals demand?

The correct answer is the Law of Supply and Demand, as it specifically addresses the relationship between the quantity of a good or service that producers are willing to sell and the quantity that consumers are willing to buy at various prices. When the market reaches a point where supply equals demand, this is referred to as market equilibrium, but the foundational principle that governs this balance is the Law of Supply and Demand.

This law asserts that as the price of a good or service increases, the quantity supplied typically increases, while the quantity demanded typically decreases. Conversely, if the price decreases, the quantity demanded usually increases, and the quantity supplied tends to decrease. This interactive relationship drives the movement toward equilibrium, where the market clears, meaning there is no surplus or shortage of goods.

While the Law of Market Equilibrium relates closely to this concept, it is more about the specific state when supply and demand are equal, whereas the Law of Supply and Demand encompasses the broader principle that explains how prices and quantities are determined in competitive markets.