When price is above the equilibrium level, competitive price cutting will continue as long as quantity supplied exceeds quantity demanded.

Question

Quizplus · Accepted Answer

When price is above the equilibrium level, there is a surplus of goods in the market, which means that quantity supplied exceeds quantity demanded. In order to sell their excess goods, firms will have to lower their prices, leading to price cutting until the equilibrium level is reached. This process is a characteristic of competitive markets.

When Price Is Above the Equilibrium Level, Competitive Price Cutting