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Market for a good is in equilibrium. Explain the chain of reactionsin the market if the price is (i) higher than equilibrium price and (ii)lower than equilibrium price.

Answer» <html><body><p></p><a href="https://interviewquestions.tuteehub.com/tag/solution-25781" style="font-weight:bold;" target="_blank" title="Click to know more about SOLUTION">SOLUTION</a> :(i) When price is <a href="https://interviewquestions.tuteehub.com/tag/higher-1022060" style="font-weight:bold;" target="_blank" title="Click to know more about HIGHER">HIGHER</a> than equilibrium price: `cdot` There is excess supply and producers are not in aposition to <a href="https://interviewquestions.tuteehub.com/tag/sell-1200244" style="font-weight:bold;" target="_blank" title="Click to know more about SELL">SELL</a> all they want to sell at the given price.<br/> `cdot` This leads to competition between producers.<br/> `cdot` Competition between producers leads to lowering of price.<br/> `cdot` Lowering of price raises demand while reduces supply. Thiscontinues <a href="https://interviewquestions.tuteehub.com/tag/till-709848" style="font-weight:bold;" target="_blank" title="Click to know more about TILL">TILL</a> demand is equal to supply again at the original equilibrium.<br/> (ii) When price is lower than the equilibrium price: `cdot` There is excess demand and consumers <a href="https://interviewquestions.tuteehub.com/tag/ar-380980" style="font-weight:bold;" target="_blank" title="Click to know more about AR">AR</a> not in a position to buy all they want to buy at the given price. This leads to competition between consumers.<br/> `cdot` Competition leads to rise in price.<br/> `cdot` Rise in price reduces demand while raises supply. This continues till demand is equal to supply again at the original equilibrium.</body></html>


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