What is equilibrium price? How is it determined?

Answer»

The price prevalent at the equilibrium point is called the equilibrium price. According to Marshall, when the demand price is equal to the supply price, the total output produced has no tendency either to be increased or decreased; it is said to be in equilibrium. The illustration below shows how the equilibrium price in the market is determined.

Price of sugar (Rs.)	Demand (Kg)	Supply (Kg)
20	20	3
25	18	8
30	14	10
36	12	12
52	10	14
65	8	18
70	3	20

The above table shows demand and supply of sugar at different prices. Demand and supply are equal at 12 Kg of sugar. This is the equilibrium point. At this point price of sugar is Rs. 36 kg. Thus the equilibrium price in the market is Rs. 36.

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