Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will

Question

Quizplus · Accepted Answer

When the price is above the equilibrium level, there is a surplus of goods (quantity supplied is greater than quantity demanded). To eliminate this surplus, sellers will lower the price, which increases quantity demanded (because consumers are more willing to buy cheaper goods) and decreases quantity supplied (because less profitable prices discourage production).

Assume in a Competitive Market That Price Is Initially Above