Chapter 7, Problem 18AA

To determine

To evaluate: The impact when the price of a good is above its equilibrium price.

Explanation of Solution

When the price is set above the equilibrium price in the market, the supplied quantity is greater than the required quantity, thereby producing a surplus. Market surplus happens when there is excess supply the amount supplied is greater than the amount needed. During market surplus some producers won't be capable to sell all their products in this case. That will encourage them to lower their price in order to make their product more attractive. Business rates are going to go down. If the price in the given market is set lesser than the price of equilibrium, the supplied quantity is less than the required quantity, thereby creating a shortage.

Economics Concept Introduction

Introduction:   The market equilibrium price is the rate that the consumers' preferences and producers' expectations agree that is, the quantity of the goods that consumers need to purchase is equal to the amount that seller wanted to sell.