Price is determined by the interaction of supply and demand.
3 .If both the the seller and the buyer agree on a price, an exchange of good and services can occur. In that case, the agreed price is called the 'equilibrium price'<em>. </em>Supply and demand are in balance. <em>When either the</em> <em>demand or the supply changes, the equilibrium price will change too.</em>
4. When there is a surplus ( the supply of goods increases ) and the demand stays unchanged, <em>the price of goods would go lower.</em> There would be too many goods available on the market, and in order to sell them the producer would have to adjust ( lower ) the price to clear the market of excess supply.
5. When there is a shortage ( the supply of goods decreases ) and the demand remain unchanged, the price of goods would <em>go higher</em>. The quantity of goods demanded would be higher than the number of products available on the market. This may result in a shortage of products and the producers would demand a higher price for their offered goods.