THE PRICE OF A COMMODITY IS DETERMINED BY THE

The price of a commodity is determined by the interaction of demand and supply. This means that the price at which a commodity is sold in the market is influenced by both the quantity of goods demanded by consumers and the quantity of goods supplied by producers.

Demand and Supply

Demand refers to the quantity of a product that consumers are willing and able to buy at a given price, while supply refers to the quantity of a product that producers are willing to supply at a given price. The interaction between demand and supply in the market determines the equilibrium price at which the quantity demanded equals the quantity supplied.

When demand for a commodity increases, assuming supply remains constant, the price tends to rise as consumers are willing to pay more for the limited available quantity. Conversely, if demand decreases, prices tend to fall as producers may need to lower prices to sell their excess supply.

On the other hand, when supply increases, assuming demand remains constant, prices tend to fall as producers compete to sell their products. If supply decreases, prices tend to rise due to scarcity in the market.

Market Equilibrium

The equilibrium price is where the quantity demanded equals the quantity supplied. At this point, there is no shortage or surplus of goods in the market. Any deviation from this equilibrium leads to either excess demand (shortage) or excess supply (surplus), which exerts pressure on prices to adjust until a new equilibrium is reached.

In summary, while suppliers and consumers play roles in influencing commodity prices through their production and consumption decisions, it is ultimately the interaction of demand and supply that determines the price of a commodity in a competitive market.

In other words, the price of a commodity is determined by the interaction of demand and supply. This means that the price of a commodity is influenced by both the quantity of goods demanded by consumers and the quantity of goods supplied by producers. When the demand for a commodity exceeds its supply, prices tend to rise. Conversely, when the supply of a commodity exceeds its demand, prices tend to fall. The equilibrium price, where the quantity demanded equals the quantity supplied, is where the price of a commodity is ultimately determined.