Equilibrium Price: Meaning | Definition | Example

The intersection of a product’s cost and demand, which results in a price compromise, is known as the equilibrium price. Customers who buy the goods and businesses that supply them are in balance at the equilibrium price.

Equilibrium price graph

equilibrium price graph
equilibrium price graph

When a product is in market equilibrium, supply and demand are balanced, and neither the customer nor the business is pressuring the seller to raise or lower the price. When the market is in equilibrium, a product’s price point remains constant; nevertheless, when there is a shortage or surplus, it increases.

In other words, the intersection of the supply and demand curves for a product represents the point of equilibrium on a graph of supply and demand. At this moment, the quantity and price of the product are agreed upon by both consumers and producers. The market for that product will no longer have equilibrium quantity or equilibrium pricing if either the quantity or the cost changes.

Example

equilibrium price
myaccountingcourse.com

The quantity given in the table above matches the quantity required at the $60 price level. As a result, $60 represents the equilibrium price. Any other price point will either have a surplus or a scarcity. In particular, for any price below $60, there is always a surplus since more goods are produced than are needed. The quantity required is more than the quantity delivered at any price over $60, resulting in a shortfall.

A technological development or lower manufacturing costs that result in an increase in the supply of the good at any price level and a reduction of the EQ could cause the equilibrium price to alter. Similar to this, a rise in production costs will lead to a reduction in supply at any price level, raising EQ.