Microeconomics: Market Equilibrium · Class 11 · CBSE · Commerce Economics
What happens to market price when there is excess demand for a commodity, assuming prices are free to adjust?
Practice question from Microeconomics: Market Equilibrium (Class 11 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
medium · Subjective · Q-4C9219
What happens to market price when there is excess demand for a commodity, assuming prices are free to adjust?
Answer: When there is excess demand, quantity demanded is greater than quantity supplied at the prevailing price. Buyers compete for the limited supply, creating upward pressure on price. As the price rises, quantity demanded falls and quantity supplied rises until the market reaches equilibrium.
Solution
Excess demand occurs when . The resulting competition among buyers pushes the price upward, reducing demand and increasing supply until the surplus demand disappears at equilibrium.
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