Copyright

Calculating Equilibrium Price: Definition, Equation & Example

Calculating Equilibrium Price: Definition, Equation & Example
Coming up next: Equilibrium Price Flashcards

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:01 Definition
  • 0:22 Equation & Example
  • 2:27 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Kallie Wells
How is the market price determined? This lesson will explain what the market price is and also walk you through an example of determining the equilibrium price.

Definition

The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.

To determine the equilibrium price, you have to figure out at what price the demand and supply curves intersect.

Equation and Example

This is easiest to see visually on this graph:

Market Equilibrium
Market Equilibrium

The supply and demand curves intersect at P* and Q*, which are the equilibrium price and quantity.

It's one thing to be able to identify the equilibrium price on a graph, but you should also be comfortable figuring out the price algebraically. Here are the supply and demand curve formulas for this example: Qd = 50 - 5P and Qs = 5 + 10P.

The supply curve is denoted as Qs, and the demand curve is denoted as Qd. They are both written as a function of price. If you happen to get formulas that are price as a function of quantity, then you would want to rearrange the formula to match this format.

To find the equilibrium price, you want to find the price at which the two equations intersect. In other words, find the price when the quantities Qs and Qd are the same. This is done by simply setting the two equations equal to one another, then solving the equation for P.

Let's go through this together.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support