Custom Search

Translate

Monday, 2 May 2011

How supply and demand determine the market price of a product and why is this price called an equilibrium price

Before Marshall, there was dispute among the economists about the determination of price that which force is important supply or demand. Marshall gave equal importance to both demand and supply , in the determination of price. The price of commodity in the market is determined by the inter-section of the forces of demand and supply. The price, at which demand and supply are equal, is known as an equilibrium price is known as equilibrium out put or amount.

Now we can explain it with the help of schedule and diagram :

Price of fish per Dollar.

6
5.5
5
4.5
4
3.5
3
2.5
2
1.5
1


Quantity demanded in kg.

10
15
20
25
30
35
40
45
50
45
60


Quantity supplied in kg.

60
55
50
45
40
35
30
25
20
15
10

EXPLANATION :- It is clear from the above schedule that price of fish at 3.5$ per kg is the equilibrium price as the quantity of supply is equal to quantity demanded. Here we see that the seller brought in market 60 kg fish at price 6$ per kg but the buyer at this price are ready to buy only 10 kg. Supply being excess over the demand, the price will be lowered by the sellers. ultimately a stage will come when the seller offer 35 kg at 3.5$ per kg the entire quantity offered for sale will be purchased.

We can also explain it by the following diagram :
EXPLANATION :- In the above diagram D is the Demand curve and S is the Supply curve . Both the curves intersect each other at the point where price come 3.5$ and quantity 35 kg. So "PQ" price is an equilibrium price and is an equilibrium output.

3 comments:

Stock Tips 4 June 2011 at 02:46  

I like your post and it really gives an outstanding idea that is very helpful for all the people on the web. Thanks for sharing.
Stock Tips

Stock Tips 4 June 2011 at 02:49  

I like your post and it really gives an outstanding idea that is very helpful for all the people on the web. Thanks for sharing.
Stock Tips

MOHD FAHMI JAES 25 October 2013 at 00:26  

equilibrium price should 2.5

Post a Comment

Google+ Followers

Best Song of the Year Baar Baar by Fysul Mirza

  © Blogger template Blue Surfing by Trade Cycle 2014

Back to TOP