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Mention the uses of Demand and supply in price determination of goods.

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Demand and supply are two important forces which play dominant role in price determination. 

In the market, the price of the commodity is determined at a point. Where 

( Demand for commodity = Supply of commodity ) 

The price at which demand for and supply of the commodity becomes equal is termed as ‘equilibrium price’. In other words, equilibrium price refers to that price at which buyer (i.e. , demand side ) is ready to buy and the seller (i.e. ,supply side ) is ready to sell. Buyers demand the commodity due to its utility while the seller sells it for earning profit

In the words of Marshall, “ The equilibrium price is the price at which the quantity of goods which the sellers are willing to offer is equal to the quantity which the buyers want to purchase.” 

Demand for commodity The demand for the commodity is made by the buyer because of its utility. In practice, the demand for the commodity is governed by the ‘Law of Demand’ i.e. , higher demand by the consumer at lower price and less demand at higher price. Thus consumer’s Demand curve DD slopes downward from left to right.

Suppy of commodity – Supply of the commodity is made by the seller because seller wants to earn profit by selling the commodities.In paractise,the supply of the commodity is governed by the ‘Law of supply ’ i.e. , more quantity at lower price. Thus the supply curve of the commodity slopes upward from left to right which states the direct relationship between price and quantity supplied. 

Commodity price: Demand-supply Equilibrium: Buyer

Wants to give the least price while the seller wants to take the maximum price of the commodity. Bargaining takes place between both the parts and at last, the price of the commodity is determined at the price where both for and supply of the commodity become equal . This price is called equilibrium price. 

In following fig. price determination of the commodity by demand and supply forces has been shown . supply curve SS cut each other at point E where price OP is determined. This price OP (or EQ ) shows the equilibrium price.

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