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Microeconomic Theory

Notes 12.3 Comparison between Market Price and Normal Price

Difference between market price and normal price are as follows—
(1) Market price is that price which is found for one day or very less days. It is a very short run price
which prevails in the market at a particular time. On the other hand, normal price is that price which
tends to prevail in the long run.
(2) In market price determination demand is active whereas supply is inactive. Market price falls or rises
with the decrease or increase in demand where supply is fixed. In other hand, in the determination
of normal price, supply is more active because it has the tendency to be in rhythm in accordance
with change in demand in the long run.
(3) Market price is influenced by temporary events. It is changed with change in events in a day or
a week. Sudden rain in a very hot day can reduce the demand for ice and price as well this way,
market price is temporary. On the other hand, normal price is the consequence of fixed factor which
brings about change in demand and supply, change in consumer’s interests, preferences, habits, etc.
can result in change in demand whereas change is the fixed factors of production can result in the
change of supply. Consequently, normal price is a permanent and fixed price. That is why, market
price tends to move around normal price as is shown in Fig. 12.9, where NP is normal price and MP
is market price.
(4) Market price can be above or below the production cost. Thus, firms can earn abnormal profits or
incur losses whereas; normal price is always to lowest point of LAC. That is why, under normal
price, firms can only earn normal profit.

Fig. 12.9

MP

MP MP
NP NP
MP MP

Self Assessment

State whether the following statements are True/False:
9. In short period, prices are determined by forces of demand and supply.
10. Long run or normal price determines the equilibrium of demand and supply.
11. Market price is that price which exists for day or very few days in the market.
12. In the determination of market price, demand remains active and supply inactive.
(5) Every article, whether they can be reproduced or not, has market price. But reproduced products
will only have normal price. If any product cannot be recreated then its supply cannot be increased
in the long run, when its demand will rise. For instance, any painting by Tagore lies at shopkeeper,
then he cannot charge normal price because Tagore is not alive, so similar painting cannot be created.
This painting can be sold only on market price which depends on its demand at a particular time.
(6) Market price is a real price that exists in the market at a particular time. On the other hand, normal
price is an unreal price. It is shapeless and illusionary, which is unrealistic. It is like mirage. A small

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