# How to Calculate Market Price Using Supply & Demand

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Calculating market price is an important process that helps a company identify the best possible price for its products. By basing pricing decisions on the principles of supply and demand, a business will be able to sell what it produces and avoid inventory buildup. Determining the best price to charge, and the correct quantity to produce, requires an understanding of current market trends and the ability to project future trends. An analysis of supply and demand can help the company accurately gauge the future market for its goods and services.

#### Tips

• You can calculate the fair market price of an item by plotting various prices and units sold at each price point in order to determine the best possible combination of pricing and sales for your own bottom line.

## Evaluating Total Supply

The term supply refers to the number of producers that will supply a particular product or service at a given price. Typically, the number of producers increases as the price of an item increases. For example, if the price of a widget is \$0, the number of suppliers will be zero because no firm can survive by providing a product or a service free of charge. As the price increases to \$10, the number of suppliers increases to 10 (in this example), which means 10 producers are willing to create widgets for \$10 each. When graphed, the supply line starts at the 0,0 point of the axis and rises to the 10,10 point.