Market PriceMARKETS:-Markets exist for the vast majority of goods and services. Markets can be defined broadly or narrowly. For example, there are consumer goods, capital goods, raw materials, financial and labor markets. Each of these broad categories can be broken down into more specific markets. For example, in the financial market there are foreign exchange and long-term loan markets, in the corn products market there are corn and copper markets, and in the consumer goods market there are clothing and automobile markets . Prices usually play an important role in these markets. EQUILIBRIUM PRICE AND PRODUCTION: In the absence of government intervention, price is determined by supply and demand. The equilibrium price is the one in which supply and demand are equal. At this point there are no forces causing the price to change. The quantity that consumers want to buy will equal the quantity that producers want to sell at the current price. At prices above the equilibrium price, the quantity supplied will be greater than the quantity demanded and the excess supply would force sellers to lower prices in order to dispose of their production. For example, if the price is 40p, supply would exceed demand by 110. This situation, illustrated in Figure 11.2, where supply exceeds demand and there is downward pressure on the price, is sometimes described as a buyers' market. At prices below the market price, for example, 2Op, the quantity demanded will exceed the quantity supplied, giving rise to a condition known as a seller's market. This is illustrated in Figure II.3. The equilibrium or market price is 3Op, because at any other price there are market forces at play that tend to change the price. EQUILIBRIUM PRICE CHANGES: Since market prices in free markets are determined by the interaction of supply and demand, changes in market prices are due to changes in supply or demand, or both. THE EFFECTS OF CHANGES IN DEMAND: -The effects of changes in demand can be expressed in terms of economic forecasts. • In the short run, all other things being equal, an increase in demand will increase the price and this, in turn, will cause an extension of supply. • In the short term, other things being equal, a decrease in demand will lower the price and cause a contraction in supply. Figure II.4 illustrates the effects of an increase in demand. OD is the original demand curve so that the equilibrium price is P and quantity Q is demanded and supplied.