Answer on Microeconomics Question for Jasmine Jackson
Consider now prices below the equilibrium price. The quantity demanded will be greater than the quantity supplied. This is referred to as excess demand, or a shortage. In the face of a shortage, consumers will compete with one another for the limited supply, and this will result in an increase in the price of the product. The increase in price will stimulate a reduction in quantity demanded and an increase in quantity supplied (movements up along the demand curve and the supply curve) until the equilibrium point is reached. Conversely, at prices above the equilibrium price, quantity demanded will be smaller than the quantity supplied, and there will be excess supply (a surplus) in the market. With a surplus, firms will compete to sell their products, and this will result in downward pressure on the price of the product. As with a shortage, there will be movements along the supply and demand curves as price changes, until the equilibrium point is reached.
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