Answer to Question #218539 in Management for Nayan ghimire

Question #218539

If actual price in this market were above the equilibrium price, what would derive the market towards the equilibrium


1
Expert's answer
2021-07-19T17:03:04-0400

If the actual price in this market is below the equilibrium price, the quantity demanded pizza will increase, but the quantity supplied of pizza will decrease because some producers will not be willing to sell at a lower price and thus will exit the market. This will cause a shortage of pizza in the market. Now the existing producers or sellers of pizza will take this advantage and increase the pizza price. When the price of pizza starts to rise, the quantity demanded pizza will start to fall, and the quantity supplied for pizza will start to rise. The price rise will continue until all the excess demand for pizza or shortage of pizza disappears from the market. The price at which the excess demand for pizza becomes zero, the market gets clear, i.e., the market again reaches its equilibrium position. The quantity demanded pizza equals the quantity supplied of pizza. So, it is the excess demand or shortage that drives the market towards equilibrium.


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