Market Price

Market Price - There is a shortage of a good or service...

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Why Does the Market Price Fall if it is Above the Equilibrium Price? There is a  surplus  of a good or service when the quantity supplied exceeds the  quantity demanded. Surpluses occur when the price is above its equilibrium level The surplus offers an incentive for those frustrated would-be sellers to offer a  lower price in order to poach business from other produces and entice more  customers to buy The result of this price cutting will be to push the prevailing price down until it  reaches the equilibrium price So, the price of a good will fall whenever there is a surplus—that is, whenever the  market price is above its equilibrium level Why Does the Market Price Rise if it is Below the Equilibrium Price?
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Unformatted text preview: There is a shortage of a good or service when the quantity demanded exceeds the quantity supplied. In this situation, either buyers will offer more than the prevailing price or sellers will realize that they can charge higher prices This bidding up of prices happens whenever there are shortagesand there will be shortages whenever the price is below its equilibrium level The market price will always rise if it is below the equilibrium level Using Equilibrium to Describe Markets The market price always moves toward the equilibrium price, the price at which there is neither surplus nor shortage...
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This note was uploaded on 03/16/2012 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at Wisconsin.

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