ABC Company Inc. has just invented the XYZ Widget, a revolutionary product that will change the lives of everyone that buys it. In this exercise, you will help ABC Company Inc choose the correct equilibrium price for the new product.
Imagine if the price of the XYZ Widget has to go up because of the increasing cost of gasoline in their market area, can you find the equilibrium price that will bring the most revenue?
Price of market balance.gif

To illustrate the use of the equilibrium price, assume the following about the figure displayed left. To find the equilibrium price you must find the intersection of the S (supply curve) and D (demand curve). Because of the dollar granularity of the chart, there may be more than one price that is considered the equilibrium point for the purpose of this demonstration. This is the Equilibrium Point, and it is the point with the maximum revenue.

  • P – price
  • Q – quantity demanded and supplied
  • S – supply curve
  • D – demand curve
  • P0 – equilibrium price
  • A – excess demand – when P<P0
  • B – excess supply – when P>P0

Find the equilibrium point by setting the price for the XYZ Widget in $:

$1$2$3$4$5$6$7$8$9$10

Here is a current fuel price from a random area. Imagine this price to be an ongoing cost of production that must be made up in the cost restructuring and will increase the cost of production which results in reduction of demand.

Initial Demand (in Units)
Decrease in Demand per Dollar increase in price
Initial Supply (in Units)
Increase in Supply per Dollar increase in price