Q.Explain how equilibrium price is determined in a competitive market. What happens if the government fixes a price above the equilibrium price?

Equilibrium price is set by the interaction of demand and supply, not by either side alone.

In a competitive market, both buyers and sellers independently decide how much to buy or sell at each possible price — captured by the demand curve (downward-sloping) and the supply curve (upward-sloping). Equilibrium price is the single price at which the quantity buyers wish to buy exactly equals the quantity sellers wish to sell — the point where the two curves intersect; the corresponding quantity is the equilibrium quantity.

At any price ABOVE equilibrium, quantity supplied exceeds quantity demanded, creating a surplus (excess supply). Unsold goods accumulate; to clear this unsold stock, sellers compete by cutting price. As price falls, quantity demanded rises and quantity supplied falls, and the surplus keeps shrinking until price returns to the equilibrium level, where the surplus disappears entirely. …

Describing equilibrium price as something the SELLER or the GOVERNMENT sets directly — in a competitive market it emerges from the interaction of both sides, and a price fixed away from this natural equilibrium (a price ceiling or floor) …