The exact price for which the supply is getting equal to the demand in the market is called equilibrium price. If a business sells products and services at equilibrium price then there will be profit. Without knowing the significance of equilibrium price it will be difficult for a small and medium busies manager to become successful. Understanding better about equilibrium price can help in developing marketing and pricing strategies.
A manufacturer should know about the current price of products and service in the market with respect to the supply and demand. If the equilibrium price is higher than the actual price of a product then the price for the product is low with respect to the current demand. If the price of the product is kept constant then there are chances of running out of business. When the stock is below the demand there are chances of missing opportunities.
In the opposite case if the equilibrium price is above then there are chances of storing excess products in the inventory. It is better than the situation in which inventory is running out, but the money will be blocked in keeping the inventory need to be monitored. Products having expiry dates also get damaged due to this case.
Companies keeping up the equilibrium price have a competitive advantage in the market. Some companies sell Â products below equilibrium price in order to get more volume of sales. Some companies keep the price above the equilibrium price by creating more demand for the product.