The equilibrium world price of a product equates the quantities of exports supplied and imports demanded.

This is a basic principle of international trade theory, known as the law of one price or the principle of comparative advantage. When the world price of a product is in equilibrium, it means that there is no excess supply or demand in the international market, and that all buyers and sellers agree on the prevailing market price. If the world price is too low, there will be excess demand for imports and excess supply of exports, leading to a shortage in the local market and a surplus in the foreign market. If the world price is too high, there will be excess supply of imports and excess demand for exports, leading to a surplus in the local market and a shortage in the foreign market. Only when the world price is at its equilibrium will the trade flows be balanced and the gains from trade be maximized.