Question

Explain why the equilibrium price of a commodity is determined at that level of output at which its demand equals its supply?

Answer 1

Equilibrium is a point when at a given price, quantity demanded is equal to quantity supplied and equilibrium can be attained only at that point. If at a given price, supply is more, it will show excess supply and if demand is greater, it will show excess demand. In either case, there will be movement in price and hence quantities, i.e. these are not stable points. Only at the equilibrium price, the quantity demanded is equal to quantity supplied and there is no tendency to change from this point.