The equilibrium price is the price that can be defined as the price of a commodity when demand for the product balances the supply for that particular product. Equilibrium prices are always felt in free-market enterprise conditions when the laws of demand and supply” meet”.
The law of supply states that quantity supplied is related to the price which is always stated as the higher the price of the product, the more the producer will supply. The law of demand is normally illustrated as the inverse relation of quantity demanded and price, the higher the price of the product, the less the consumer will demand.
At equilibrium, the quantity of goods supplied equals the quantity demanded. If consumers demand more of the good than producers are prepared to supply then the price at equilibrium will rise. This leads to a shortage of goods. However, the producers supply more than the consumer demand then the price at equilibrium will be low. This is called a surplus.