Equilibrium price of commodity
Describe why the equilibrium price of commodity is determined at the level of output at which its demand equavalents its supply.
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Assume that demand is greater than supply. As the buyers will not be able to purchase all what they want, there will be competition between the buyers. It will encompass on upward influence on price. As an outcome demand will begin falling and supply rising. This will go on till demand is equavalent to supply again.
When demand is less than supply. As the sellers will not capable to sell all what they wish, there will be competition between the sellers. It will encompass a downward influence on price. As an outcome demand will begin rising and supply falling. This will go on till demand is equavalent to supply again. Therefore, the equilibrium price of a commodity is found out at that level of output at which its demand equavalents its supply.
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