when the quantity of a good or service that s available matches the demand of potential consumers for it the market is said to achieve equilib rium the concept of price theory allows for price adjustments as market conditions change 
relationship of supply and demand to price theorysupply denotes the number of products or services that the market can provide this includes both tangible goods such as automobiles and intangible ones such as the ability to make an appointment with a skilled service provider in each instance the available supply is finite in nature there are only a certain number of automobiles available and only a certain number of appointments available at any given time supply may be affected by forces that are beyond a producer s control such as the availability of raw materials demand applies to the market s desire for tangible or intangible goods at any time there is also only a finite number of potential consumers available demand may fluctuate depending on a variety of factors such as whether an improved version of a product is available or if a service is no longer needed demand can also be affected by an item s perceived value by the consumer market as mentioned earlier equilibrium occurs when the total number of items available the supply can be consumed by potential customers if a price is too high customers may avoid the goods or services or find other alternatives this would result in excess supply and possibly cause producers to lower prices in contrast if a price is too low demand may significantly outpace the available supply causing prices to rise again the optimal price taking into account both supply and demand is also referred to as the clearing price example of the theory of pricecompanies often differentiate their product lines vertically rather than horizontally considering consumers differential willingness to pay for quality as noted by michaela draganska of drexel university and dipak c jain of insead in the journal marketing science many firms offer products that vary in characteristics like color or flavor but that do not vary in quality 1their study found that using uniform prices for all products in a particular product line tends to be the best pricing policy for producers for example apple inc offers several different macbook pro laptop computer models with varying screen sizes capabilities and prices the customer has a choice of two colors silver and space gray 2 if apple charged a higher price for a 13 inch silver macbook pro versus an otherwise identical space gray one demand for the silver model might fall and the available supply of the silver model would increase at that point apple might be forced to reduce the price of that model 