When there is a surplus in a market prices are likely to fall because?
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8
Heya....
@@ Surplus in market price tends to fall in the situation of excess demand sometimes.....
Because.....
** Excess demand causes the highest situation for supply directly by firms...
** Due to limited supply producer will increase the prices for earn profits...
** But it reduces the purchasing power of buyers....
** Hence in situation of surplus prices tends to fall by govt for social welfare....
** Govt introduce price ceiling at this time to cop up this situation..
@@ Surplus in market price tends to fall in the situation of excess demand sometimes.....
Because.....
** Excess demand causes the highest situation for supply directly by firms...
** Due to limited supply producer will increase the prices for earn profits...
** But it reduces the purchasing power of buyers....
** Hence in situation of surplus prices tends to fall by govt for social welfare....
** Govt introduce price ceiling at this time to cop up this situation..
Answered by
3
Surplus and shortage: If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. ... Therefore, surplus drives price down. If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a shortage.
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