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Market Equilibrium
Market Equilibrium
If the market price is not equal to the equilibrium price, the quantity
demanded is not equal to the quantity supplied. If the market price is too high
many sellers want to sell, but only few buyers are interested in buying. This
means that the quantity supplied exceeds the quantity demanded - a situation
called excess supply. As a result, to sell off the glut stock, sellers reduce their
price to the equilibrium price and the demand is restored
If the market price is too low, many buyers will be interested in buying the
good, but only very few sellers want to sell the good. This implies that the
quantity demanded exceeds the quantity supplied. This is a situation of excess
demand. Consequently, the sellers will increase their prices until the market
price reaches the equilibrium price. This will restore the quantity demanded to
to the level of quantity supplied.