Q:

How is the equilibrium price determined?

A:

Quick Answer

The equilibrium price of a product or service is determined through extensive market research research. It can also vary over time. This equilibrium price occurs when the number of customers willing to pay a certain price meets the quantity suppliers are willing to make.

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Full Answer

As the price of a product or service drops, more customers are willing to purchase it. This is shown on a graph using a downward-sloping line. Suppliers are willing to sell products for less money when they can produce more, and this is shown using an upward-sloping line. The point where the two lines intersect is called the equilibrium price.

Determining the equilibrium price is difficult, and many companies rely on surveys and market research to estimate the price. However, the inherent difficulty in predicting customer behavior means that they are often wrong, and they might need to revise their estimates over time.

In addition, these lines do not account for other costs. Advertising is necessary for selling certain types of products, and determining the right amount to invest in advertising is important. In addition, some products and services cost the same even if they are produced in large quantities. If this is the case, the supply line is flat.

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