Difference between Market Price and Normal Price

This article will help you to learn about the difference between market price and normal price.

Difference between Market Price and Normal Price

(a) Very Short-Period Value vs. Long-Period Value:

The market price is the very short-period price in the sense that the supply of a commodity cannot adjust itself to demand in this period. The normal price is a long-run price which is established through the proper adjustment of supply to demand.

(b) Demand vs. Supply:

In the very short period, demand exercises a greater influence upon the price; while in the long run supply exerts a stronger influence upon it. Hence, the market price is determined mainly by the conditions of demand or marginal utility and the normal price mainly by the supply or cost of production.

(c) Momentary Equilibrium vs. Permanent Equilibrium:

The market price is determined at a temporary equilibrium. The normal price is the result of a permanent equilibrium between the forces of demand and supply. Hence the normal price is more stable than the market price.

(d) Fluctuating Value vs. Steadying Value:

The market price is fluctuating one while the normal price is more steady than the market value. The former is always fluctuating around the normal value. It may sometimes be more and sometimes be less than the normal value. But, its tendency is to finally arrive at the normal value and establish a more permanent equilibrium in the market.

Conclusion:

The truth is that these two prices are closely related to each other. The relation between market price and normal price can be compared to the pendulum of a clock. Although the pendulum of a clock moves to and fro, it has a tendency to come to the central position. Similarly, though the market price moves around the normal price, it has a tendency to be equal to normal price.