What determines the equilibrium price in a competitive market?

In a competitive market, demand for and supply of a good or service determine the equilibrium price. MARKETS: Equilibrium is achieved at the price at which quantities demanded and supplied are equal. We can represent a market in equilibrium in a graph by showing the combined price and quantity at which the supply and demand curves intersect.

What happens when a market is in equilibrium?

When the market is in equilibrium, there is no tendency for prices to change. We say the market-clearing price has been achieved. A market occurs where buyers and sellers meet to exchange money for goods. The price mechanism refers to how supply and demand interact to set the market price and amount of goods sold.

What is the new market equilibrium?

The new market equilibrium will be at Q3 and P1. If there was an increase in income the demand curve would shift to the right (D1 to D2). Initially, there would be a shortage of the good. Therefore the price and quantity supplied will increase leading to a new equilibrium at Q2, P2. 2. Increase in supply