Equilibrium Price
Economic theory states that equilibrium price exists where demand and supply are equal.
We achieve equilibrium price when the demand for the product or service is equal to the supply of that product or service.
Above the point of equilibrium on the diagram, supply exceeds demand. Therefore, there will be an oversupply of that product or service. Oversupply will result in a reduction in price to try to sell the surplus product.
Below the point of equilibrium on the diagram, demand exceeds available supply. Consequently, the price will increase.
In reality a number of factors have an influence on prices, as we will see later.