demanded is equal to the quantity supplied.
The concept of equilibrium price is a key principle in economics and refers to the point at which the quantity of a good or service that consumers are willing and able to purchase is equal to the quantity that producers are willing and able to produce. At this point, there is no tendency for either the price or the quantity to change, as the forces of supply and demand are in balance.
To understand how the equilibrium price is determined, it is helpful to consider the two main forces at play in any market: supply and demand. The quantity of a good or service that producers are willing to supply is typically influenced by the price of the good or service. When the price is high, producers are more likely to increase their production, as they can earn more profit. Conversely, when the price is low, producers may decrease their production, as the profit margin becomes smaller.
On the other hand, the quantity of a good or service that consumers are willing to purchase is typically influenced by the price of the good or service. When the price is high, consumers are less likely to buy the good or service, as it becomes more expensive. Conversely, when the price is low, consumers are more likely to buy the good or service, as it becomes more affordable.
The interaction between these two forces determines the equilibrium price and quantity of a good or service. When the price is too high, the quantity demanded by consumers will be less than the quantity supplied by producers. This creates a surplus of the good or service, and producers will be forced to lower the price in order to sell their excess inventory. Conversely, when the price is too low, the quantity demanded by consumers will be greater than the quantity supplied by producers. This creates a shortage of the good or service, and producers will be able to raise the price as consumers are willing to pay more to obtain the scarce goods.
Eventually, the price will reach a point at which the quantity demanded is equal to the quantity supplied. This is the equilibrium price, and it represents the point at which the forces of supply and demand are in balance. At this price, producers are able to sell all of the goods or services that they produce, and consumers are able to buy all of the goods or services that they desire. There is no excess inventory or shortage, and there is no tendency for the price or quantity to change.
In summary, the equilibrium price is established when the quantity demanded is equal to the quantity supplied. This occurs when the price is high enough to encourage producers to supply the goods or services that consumers demand, but not so high that consumers are unable or unwilling to buy them. The equilibrium price represents the point at which the forces of supply and demand are in balance, and it is an important concept in economics.