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Unformatted text preview: sales. A higher price will simultaneously increase the quantity supplied and decrease the quantity demanded. This adjustment will reduce the shortage, but as long as the price is below 200$, there will be a shortage. Only when price has risen to 200$ will the market be in the equilibrium. For the surplus in (B) When there is a surplus, firms have unsold goods piling up, which gives them an incentive to increase their sales by cutting the price. Cutting the price will simultaneously increase the quantity demanded and decrease the quantity supplied. This adjustment will reduce the surplus, but as long as the price is above 200$, there will be a surplus, and downward pressure on the price will continue. Only when the price has fallen to 200$ will the market be in the equilibrium....
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This note was uploaded on 10/19/2008 for the course ECON 201 taught by Professor Shea during the Fall '08 term at Maryland.
- Fall '08