Question

Price of a good is determined at a point where

• A. Demand of the commodity is high
• B. Supply of the commodity is high
• C. Demand of the commodity and supply of the commodity are equal
• D. None of these

Hint:

The equilibrium price is found where the demand curve intersects the supply curve. This is the only price where the plans of buyers and sellers coincide.

Answer 1

The Correct Option is C

In a competitive market, the price of a good adjusts to balance the forces of supply and demand. The equilibrium price, also known as the market-clearing price, is established at the intersection of the demand curve and the supply curve. At this specific point: \[ \text{Quantity Demanded} = \text{Quantity Supplied} \] If the price were higher than the equilibrium, there would be a surplus (supply>demand), pushing the price down. If the price were lower, there would be a shortage (demand>supply), pushing the price up. The stable price is where the two are equal. High demand or high supply alone does not determine the price; it is the interaction between them.