Revision Notes

Market Price-Equilibrium Price

Equilibrium price can be defined as the price at which the quantity demanded is equal to the quantity supplied.
Market Price can be defined as the price prevailing in the market. Prices are determined by supply and demand forces.
It is not necessary that Market Price is equivalent to Equilibrium price.
In the graph below the point at which the demand curve meets the supply curve is the equilibrium price.

market equilibrium

Effect of change in Demand and Supply

Demand

Supply

Equilibrium price

Equilibrium quantity

Increase

Unchanged

Rise

Rise

Decrease

Unchanged

Fall

Fall

Unchanged

Increase

Rise

Rise

Unchanged

Decrease

Rise

Fall

 

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