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  • The price of a product depends up on 1) its demand and 2) its supply. Demand for a product in turn depends upon utility it provides to consumers and the supply on the cost of producing it. Equilibrium price is determined at a point where demand is equal to supply. Here, all other things are supposed to be equal.
  • However, we seldom get a stable equilibrium. Conditions underlying demand and supply keep on changing and demand and supply curves keep on shifting giving rise to a new equilibrium price. Supply remaining same, if demand increases, equilibrium price will move up and if demand decreases, the equilibrium price will move down. Demand remaining same, if the supply increases the equilibrium price will decline and vice-versa.
  • There can be simultaneous change in both demand and supply and the equilibrium price will change according to the proportionate change in demand and supply.
  • Suppose Qd = 13500 – 500 P and Qs = 3000 + 200 P then the equilibrium price would be
    As we know at Equilibrium Demand = Supply
    13500 – 500 P = 3000 + 200 P
    13500 – 3000 = 200 P + 500 P
    10500 = 700 P
    700 P = 10500
    Price is = 10500/700 = 15/-
    Substituting the value in the equation
    13500 – 500 X 15 = 6000 units and 3000 + 200 X 15 = 6000 units.
    i.e., demand is equal to supply.

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