Answer to Question #211655 in Microeconomics for Farhan

Question

 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

If the market price is above the equilibrium price, quantity supplied will be greater than the quantity demanded thus creating a surplus which leads to market price to fall because there is surplus.

If the market price is below the equilibrium, the price quantity supplied is less than the quantity demanded thus creating a shortage. The market market is not clear because it's in shortage which leads to rise in market price.