Equilibrium Price refers to the the market price at which the supply of an item equals thedemand of it. equilibrium is an important concept in economics. Equilibrium price is also referred as the equilibrium output.
Market equilibrium occurs where the amount consumers wish to purchase at a particular price is the same as the amount producers are willing to offer for sale at that price. It is the point at which there is no incentive for producers or consumers to change their behaviour.
Equilibrium price and output are found at the point of intersection of demand and the supply curve.
Equilibrium Point is the Point where Quantity Demanded = Quantity supplied.
( Both quantity Demanded and quantity supplied are displayed on x-axis.)
Here, P1 is the equilibrium price. At P1,
Quantity demanded = Quantity supplied.
Q D+S is the equilibrium level of quantity demanded and supplied
Example to Find out equilibrium Price
Given Demand and Supply functions are
Qd = 3P + 2 (1)
Qs = 10 - P (2)
In equilibrium, Qs = Qd.
And so, we can equate (1) and (2)
Qd = Qs
or 3P + 2 = 10 - P
or 3p + p = 10 - 2
or 4p =8 or p = 2
So, for the given equations, Equilibrium Price = 2
And to calculate the quantity Demanded, we will put the value of p in equation (1)
Qd = 3P + 2
= 3(2) + 2 = 8
And Qs = 8
And the equilibrium level of output is Qd = Qs = 8