Equilibrium price is determined by the industry at
that point where total demand is equal to total supply.
But, whether demand
will have more effect or supply on the determination of the price, will depend
on how much time will it take for
the demand and supply to stabilize.
Importance of
time element in the determination of price has been first examined by Dr. Marshall.
According to him, shorter
the time period, greater will be the influence of demand in price determination
and longer the period, greater will be the influence of supply on prices.
Marshall has divided the time elements into four
periods:
1) Very short
period or market period
2) Short
period
3) Long
period
4) Very long
period
Very short period or market period
It is the time
period during which supply of a commodity can be increased only up to the
extent of its existing stock.
In case of
perishable commodity which cannot be stored, supply becomes absolutely fixed or perfectly inelastic.
