In a competitive market, if the existing price is below the equilibrium price, market forces will drive the price:

Question

Quizplus · Accepted Answer

If the existing price is below the equilibrium price, there is excess demand in the market which causes buyers to compete with each other to purchase the product. This increases the price and quantity supplied as producers see the opportunity to make higher profits. As the price rises, the quantity demanded will decrease due to the law of demand. Eventually, the market will reach a new equilibrium where quantity demanded equals quantity supplied at a higher price than before.

In a Competitive Market, If the Existing Price Is Below