How does the demand and supply of a product affect the equilibrium price and equilibrium quantity?

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justaguide eNotes educator| Certified Educator

The equilibrium price of a product is directly proportional to its demand and inversely proportional to its supply. An increase in demand for a product with the supply of the product remaining the same leads to an increase in the price. A decrease in the supply of a product for the demand remaining the same also has a similar effect on the price. On the other hand if the demand decreases with the supply remaining the same or there is an increase in supply with the demand remaining the same, the price of the product decreases.

The demand and supply of a product is a function of the product's price. For most products an increase in price tends to decrease the demand of the product and increase its supply. A decrease in the price of the product increases the demand and decreases the supply. The point where the graphs of the demand function with respect to price and the supply function with respect to price intersect provides the equilibrium quantity as well as the equilibrium price.