Market equilibrium is a situation of the market in which demand for a commodity in the market exactly matches its supply corresponding to a particular price, called equilibrium price. Thus, in a state of equilibrium, the market clears itself as market demand = market supply of the commodity. There is neither excess demand nor excess supply. In such a situation, the price that prevails in the market is called equilibrium price. It is called general theory of price determination or price determination theory of demand and supply. Marshall assumes that price of a commodity is neither determined by demand (utility) nor supply of the commodity (cost of production), but it is rather determined by the forces of both – demand and supply.Effect of changes in supply on Equilibrium.

Supply of any commodity may change due to various factors. The main ones are:

1. Supply may change due to changes in cost of production. With increase in cost, supply decreases, and with decrease in cost, supply will increase.
2. New inventions also affect the supply of a product. Due to increased use of new substitutes, the price and supply of old goods decreases.
3. Technological change also changes the level of production. This results in change in supply.
4. Discovery of new sources of raw material increases the supply of goods.
5. Changes in the attitude of producer also changes supply.
6. Changes in government policy may also change the supply.