Q. 14 B5.0( 1 Vote )

Explain the chain

Answer :

Equilibrium price refers to the price at which market demand is equal to market supply, which means where there is no excess demand or excess supply.

When price will rise above the equilibrium price, demand will be less than supply i.e. there will be excess supply in the market.

Excess supply of a good creates competition among the sellers of the good, because the sellers will not be able to sell all they want to sell at the existing price. This leads to fall in price of the good.

With fall in price of goods there will be rise in demand. The change will continue till demand for the good equals to its supply and the market is in equilibrium again. Thus, equilibrium price will be restored through the free play of market forces.

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