How does price reacts to situations of surplus and shortage to bring the equilibrium to its optimum level?
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Explanation:
Once you raise the price of your product, your product's quantity demanded will drop until equilibrium is reached. Therefore, shortage drives price up. If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated.
The price will rise until the shortage is eliminated and the quantity supplied equals quantity demanded. In other words, the market will be in equilibrium again.
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