Question

Explain what happens when the market price is more than the equilibrium price.

Answer 1

When the market price is more than the equilibrium price, the quantity supplied becomes greater than the quantity demanded, resulting in excess supply or surplus in the market. This means that sellers have unsold stock, which creates competition among sellers. In order to sell the excess stock, sellers begin to lower the price. This puts downward pressure on the price. As the price falls, demand rises and supply contracts. Eventually, this process continues until the market reaches the equilibrium point, where the quantity demanded equals the quantity supplied and the surplus is eliminated.