PRICE DETERMINATION UNDER PERFECT COMPETITION Under perfect competition there exists a single price for a particular products

in the entire market. this price is called as 'equilibrium Price'. Equilibrium price is that price at which the demand for a commodity is equal to its supply. equilibrium price is determined by the interaction of the force of demand and the supply in the market. In perfectly competitive market, there is only one price of a commodity and it is called equilibrium price. Equilibrium Price Determination under Perfect Competition: Under perfect competition, price is determined by the interaction of the market forces of demand and supply. Sellers want to sell their products at the highest possible price and buyers wants to buy the goods at the lowest possible price. Price is determined at a point where the market forces of demand and supply interact and exchange take place The price at which demand is equal to supply and exchange take place is called Equilibrium price. This can be explained with the help of the following scheduled and diagram.

Equilibrium Price Determination Diagram

From the above diagram it can be observed as follows:

(1) When the price is OP1 (higher Price), the demand is 'p1a' and the supply is "P1b'. It means that at OP1 price(higher price), supply exceeds demand. There is disequilibrium in the market. Hence Op1 price will not prevail in the market and the price has to come down to that level at which demand is equal to supply.

(2) When the price is OP2(lower price), the demand is 'P2a' and the supply is 'P2c'. It means that at OP2 price(lower price), demand exceeds supply. There is also disequilibrium in the market. Hence OP2 price also will not prevail in the market and the price has to go to that level at which demand is equal to supply.

Conclusion: Thus, from the above scheduled and diagram, it is observed the equilibrium price is determined by the interaction of demand and supply. It is the price at which demand is equal to supply. It is the price which going to prevail in the market.