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Prices of commodities are determined by the
interaction of two forces of demand and
supply. demand has inverse relation with
price i.e when price rises, less quantity is
demanded. On the other hand, supply has
direct relation with price i.e. If price increases,
more quantity is supplied. It is the equality of
these two forces which settles the price of a
commodity at a particular level in the market.
If at any time , the quantity demanded and
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quantity supplied are not equal, price starts
moving. The movement of price induces
opposite changes in demand and supply. A
fall in price extends demand but contracts
supply. While a rise in price contracts
demand and expands supply. The movement
of price, upward or downward, continues till
such a price is reached at which demand
becomes just equal to supply. This is called
the equilibrium price.
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Œ
  upward
4  4  upward
 4
 upward

ΠΠ quilibrium
     ownward
Œ
Π  ownward
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£
£ £
£




£
£
£ £



 
£    

 
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If Qd 
P
Qs 4 P
å 

 


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Qd 

Qd
ubstituting value of P in supply function
Qs4 
Qs4
Qs

o at price  Qd and Qs are equal. o this is

the equilibrium price.
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†onsider the quadratic relationship between

supply and demand which is given by
YabxcxŒ
QdŒ
p
4pΠand
QsŒpŒ
Then for equilibrium
QdQs
Œ
p
4pŒŒpŒ which is simplified to

pŒ p

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olving this equation by factorization we get

pŒ, and p
Œ

ince the negative price is not ration able in
economics so the only solution is pŒ
ubstituting p in demand equation We get
QdΠ
ubstituting p in supply equation we get
QsΠ
o the result is verified.