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The equilibrium price of a product or service is determined through extensive market research research. It can also vary over time. This equilibrium price occurs when the number of customers willing to pay a certain price meets the quantity suppliers are willing to make.
How can an equilibrium price be found. What happens if a firm sets the price of a product above the equilibrium level. What is price determined by. The interaction of demand and supply. If price is not at the equilibrium level initially, what will market forces do.
This lesson will explain what the market price is and also walk you through an example of determining the equilibrium price. Definition The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. The equilibrium price for dog treats is the point where the demand and supply curve intersect corresponds to a price of $ At this price, the quantity demanded (determined off of the demand curve) is boxes of treats per week, and the quantity supplied (determined from the supply curve) is boxes per week.
Thus, at the equilibrium price, wishes of both the buyers and sellers are satisfied and the market will be in a state of rest. At all other prices, the wishes of buyers and sellers would be inconsistent and are, thus, disequilibrium prices. They will not persist. If price is greater than the equilibrium price, supply would exceed demand. At equilibrium level of output OX, price is equal to its marginal cost and marginal cost curve cuts the MR curve from below. The firm enjoys normal profits. Now, suppose demand increases from DD to D 1 D 1 and the industry is in equilibrium at point E 1 which determines the price OP 1 The new price OP 1 is less than the new market price i.e., OH.