In an open market, several forces set the prices of a commodity exist. These forces are supply and demand. Supply is mainly the price suppliers are willing and ready to deliver in the market. Demand is the price buyers are willing and ready to buy a certain commodity. These two forces tend to play with each other on a graph to achieve the correct market value of a commodity where both suppliers and buyers are comfortable (Economic Help, 2013). The point where the two parties agree on the price is referred to as market equilibrium. Therefore, an analysis of market equilibrium, which is the point where the forces of demand and supply intersect, is done.
The y axis represents the price while the x axis represents the quantity. In this case, the forces of demand and supply use price mechanism to set the equilibrium price of a commodity. A free market is a market that is determined by the forces of demand and supply without the effect of external forces. In this case, when the suppliers set their prices to high the buyers will not buy their commodities and vice versa (Kates, 2011). The point at which the two parties agree with each other is the point of intersection on the graph. This point is known as market equilibrium. According to the diagram above, point Qe and Pe where supply and demand intersects is market equilibrium.
Based on the above discussion, it is evident that market equilibrium is determined by nature through the forces of demand and supply. In market equilibrium, it is essential to note that this point is stable since there are no external forces that affect it. Moreover, any point above or below the market equilibrium shows an indication of a deficit or surplus of a commodity.