Question

31.Explain the chain effects in demand and supply curve.​

Answer 1

Answer:

If the prevailing market price is below the equilibrium price, then there occurs the situation of excess demand.

Let us assume that the market price P is below the equilibrium price P e According to the demand curve, quantity demanded is q'd Whereas, according to the supply curve, the quantity supplied is q's So, it can be seen that there emerges the situation of excess demand equivalent to. This excess demand will increase competition among the buyers; consequently, the buyers will tend to buy output at higher price (due to the competition), which as a result will increase the market price. The market price will continue to rise until it becomes P, where the equilibrium is restored.