Quantity demanded and quantity of goods offered is very influenced by the price. From the demand side, the lower the price level, the better for consumers. From the supply side, the higher the price, it will be more profitable for producers. The problem is to unite the two sides are in the same market. The answer to the above problems is through the equilibrium price.
Equilibrium price formation process
Price equilibrium is reached when the quantity demanded equals the number of items offered at specific times and specific prices. Graphically, the equilibrium price occurs at the point of intersection between the demand curve with the supply curve.
If the equilibrium price is reached, either producers or consumers alike do not want to increase or decrease the price and quantity of goods bought and sold.
The impact of shifting demand and supply on equilibrium price
1. Shift the demand curve
When demand increases, the demand curve will shift to the right of DD to D1D1. This shift will impact the balance point shifts from point E to point E1. In addition, the price is also shifting from P to P1, and the number of shifts from Q to Q1.
When supply decreases, the demand curve will shift from DD to D1D1. A balance also will shift from E to E1. Prices will be shifted down from P to P1 and the number of shifts from Q to Q1.
2. Shift the supply curve
When the supply curve shifts to the right, the number of bids will shift to the right and the price level down. The supply curve shifts to the lower right of the SS to S1S1 and the balance point shifts from E to E1. The amount of goods on offer increased from Q to Q1, while the price dropped from P to P1.
At a reduced supply, the supply curve shifts to the left of the SS to S1S1, causing the balance point shifts from E to E1. The reduced supply will result in changing the equilibrium price. Prices will increase from P to P1, and the number of items reduced from Q to Q1.