Answer to Question #209062 in Microeconomics for jean marie

Question

The market mechanism is the tendency for prices to change until the quantity demanded equals quantity supplied. Using illustrations provide an explanation on how the market adjusts to the market equilibrium when the price in the market is not originally set at the market equilibrium price.

Answer 1

When market price is higher compared to equilibrium price, quantity supplied is usually greater than the quantity demanded, resulting in a surplus. At this case, the market price usually falls.

However, when market price tends to be lower than equilibrium price, quantity supplied is less than the quantity demanded, causing a shortage. The market can never be clear. It will be in short supply. Based on the shortage, market prices will automatically rise.