What is the Difference Between Market Price and Equilibrium Price?

The difference between market price and equilibrium price lies in their determination and the balance between supply and demand. Here are the key differences:

• Market Price: This is the economic price for which a good or service is offered in the marketplace. Market price is significantly affected by factors such as demand, availability of substitutes, and the competitive landscape.
• Equilibrium Price: This is the price where demand and supply for a good or service are equal. Equilibrium price is a phenomenon that is always affected by demand and supply, and it represents the balanced state in which market supply and demand balance each other, resulting in stable prices.

In summary, market price is the actual price at which a good or service is being traded in the market, while equilibrium price is the theoretical price at which supply and demand would be balanced, given the current market conditions. There is a tendency for prices to return to equilibrium unless some characteristics of demand or supply change.

Comparative Table: Market Price vs Equilibrium Price

The difference between the market price and the equilibrium price can be represented in the following table:

In this example, the market price is always $0.40 lower than the equilibrium price. The equilibrium price is the only price where the quantity of goods supplied is equal to the quantity of goods demanded. When the market price is different from the equilibrium price, it can lead to surpluses or shortages, as the quantity supplied and demand do not match.