Market price simply can be defined as a price at which the commodities or the products are

available in the market. The key elements which play a role in determining the price of the
product in the market are demand and supply. Demand means the quantity of products
required by the buyers and supply means quantity of products market can put forward to
the buyer (Heakel, 2014).
There are two situations which affect the market price:
A. Equilibrium
(i) If the quantity of goods demanded equals to the quantity of goods supplied then
it is known as equilibrium

B. Disequilibrium
If the quantity of products demanded is not equal to the quantity of products supplied
then the situation of disequilibrium arises and it results into increase and decrease of
prices of products. The following situation makes it clear:
(i) Excess supply: if supply of goods is more than its demand then it will result into
fall in price.
P
r
i
c
e

(
$
)
Quantity
P1
Q1
S1
Demand
(D)
S2
P2
Q2

(ii) Excess demand: if demand is more than the goods supplied then it will result in
increase in price.
P
r
i
c
e

(
$
)
Quantity
P1
Q1
Supply
D1
Q2
P2
D2

(iii) Shortage of demand: if demand of goods is less than the supply of goods than it
will result in fall in price.
P
r
i
c
e

(
$
)
Quantity
P2
Q2
Supply
D2
Q1
P1
D1

(iv) Shortage of supply: if demand of goods is more than the supply of goods than it
will result in rise in price.
P
r
i
c
e

(
$
)
Quantity
P1
Q2
S1
Demand
Q1
P2
S2

Thus it could be concluded that market price is nothing but the reflection of law of
demand and supply of goods available in the market.