The price of a commodity is inversely proportional to quantity demanded and is directly proportional to the quantity supplied. We shall now delve into the ways by which the price is modified to synchronise the pattern of buying goods and selling the same. The target of such co-ordination is to achieve equilibrium in market.
When opposing entities balance each other, in such case equilibrium is said to be achieved. When price of a commodity stabilises the selling and buying plans, then equilibrium is said to have achieved in the market. The price, at which demanded quantity is equivalent to supplied quantity, is called the equilibrium price. While equilibrium quantity can be said as amount of a commodity purchased and sold at equilibrium price.
The following are the reason for which the market to move towards equilibrium:
- Price adjusts buying and selling policies.
- Price changes when plans don’t tally as expected.