The point of rest where demand and supply intersect is called market equilibrium. Here, an intersaction of to opposite market forces ‘demand & supply’ determines an equilibrium price, where the quantity demanded and supply are equal. Here, the market equilibrium and equilibrium price can be analyzed with under the help of the following figure:
On the above figure quantity demanded, quantity supply and the price is measured along y-axis & y-axis respectively. D & S are the demand and supply curve respectively. E is an equilibrium where demand and supply are intersect together. Hence, the equilibrium price P is determined as: when the price was P1 there is higher quantity of supplying commodities but the demand is low, which causes excess supply and there is more surplus. Thus it pushes it towards P. When the price is P2 there is higher demand and the limited supplying commodities which cause the problem of scarcity in this situation of excess demand. Thus it also pushes the price upward at P. The restion point of price equilibrium price is determined on P from the intersaction between both “Demand & Suply”.