Q.What will happen if the price prevailing in the market is
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Start your 14-day free trial to unlock the full solution →When price deviates from equilibrium, market forces automatically push it back: above equilibrium creates excess supply (surplus) that drives price down; below equilibrium creates excess demand (shortage) that drives price up.
The equilibrium concept
Equilibrium price is where the quantity buyers want to purchase exactly equals the quantity sellers want to sell—the market clears. At this price, there is no pressure for change because both sides of the market are satisfied simultaneously. The demand curve slopes downward (higher prices reduce quantity demanded) and the supply curve slopes upward (higher prices encourage more supply), so they intersect at a unique point.
What happens when the actual market price sits away from this intersection? The mismatch between what buyers want and what sellers offer creates pressure that moves the price back toward equilibrium. This self-correcting mechanism is the invisible hand of the market.
(i) Price above equilibrium
When price is set higher than the equilibrium level, quantity supplied exceeds quantity demanded. Sellers want to sell more at this attractive price, but buyers pull back because the good is now expensive relative to their willingness to pay.
This gap is called excess supply or a surplus. Goods pile up unsold—inventories accumulate on shelves, warehouses fill, producers cannot find enough buyers. Facing this reality, sellers compete with one another to offload their stock. They begin to lower prices, offering discounts or better terms. As price falls, two things happen: quantity demanded rises (the good becomes more affordable) and quantity supplied falls (some producers cut back or exit). The price continues downward until the surplus disappears—that is, until we reach equilibrium again.
The adjustment happens through voluntary decisions: no central authority orders the price down; sellers themselves choose to cut prices rather than hold unsold inventory indefinitely.
(ii) Price below equilibrium
When price is set lower than equilibrium, quantity demanded exceeds quantity supplied. Buyers want to purchase more at this bargain price, but sellers are unwilling or unable to produce enough at such low revenue. …
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