price determination

• Equilibrium


  A state of balance between market demand and supply. There is no excess demand or supply
• Equilibrium price


  The price where quantity demanded is equal to quantity supplied, it is also known as the market clearing price
• Disequilibrium


  Prices where demand and supply are out of balance
• Equilibrium price and quantity changes

  • demand increases - higher price, higher quantity

  demand decreases - lower price, lower quantity

  supply increases - lower price, higher quantity

  supply decreases - higher price, lower quantity
• Not all prices are set by the free-market forces of supply and demand. Regulators impose a pricing formula on suppliers eg rail fares, postage stamps and water bills.
• When there is a change in both demand and supply, price can either increase, decrease or stay the same, so we say price is uncertain