Q. 55.0( 2 Votes )
Explain how price is determined in a perfectly competitive market with fixed number of firms.
In a perfectly competitive market equilibrium price is determined by the market forces of demand and supply.
Market equilibrium is determined when market demand is equal to market supply.
Market demand is the total demand for a commodity by all the buyers in the market. Demand curve slopes downward due to the law of demand.
Market supply is the total of supplies of a commodity by all the firms in the market, its curve slope upward due to law of supply.
Equilibrium price is where the market demand curve and market supply curve intersect each other that is where market demand is equal to market supply.
The schedule and graph given below will help to understand the concept -
The equilibrium price is Rs 9 where market demand is equal to market supply
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