Q4 of 25 Page 84

What will happen if the price prevailing in the market is –

(i) Above the equilibrium price?


(ii) Below the equilibrium price?

If the price prevailing in the market is above the equilibrium price –

Then the demand will be less than the supply, it means a situation of excess supply will be in the market


If the price prevailing in the market is below the equilibrium price –


Then there will be more demand and less supply, it means situation of excess demand or shortage of supply.


More from this chapter

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2

When do we say there is excess demand for a commodity in the market?

 3

When do we say there is excess supply for a commodity in the market?

 5

Explain how price is determined in a perfectly competitive market with fixed number of firms.

 6

Suppose the price at which equilibrium is attained in exercise 5 is above the minimum average cost of the firms constituting the market. Now if we allow for free entry and exit of firms, how will the market price adjust to it?