When the market price is above equilibrium price, the market price will be drive
If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. Market price will fall.
When the market price is above the equilibrium price, it creates a situation known as a surplus or excess supply. This means that the quantity supplied by producers exceeds the quantity demanded by consumers. As a result, there will be unsold goods or services in the market.
In this situation, the market forces will work to bring the market price down towards the equilibrium price. Here's an explanation of how this process unfolds:
1. Surplus: When the market price is higher than the equilibrium price, producers have an incentive to sell more at the higher price. However, consumers are not willing to purchase as much at the higher price. This creates a surplus, as producers are unable to sell all their goods.
2. Increased competition: As the surplus persists, producers will start facing competition from other sellers who still have unsold goods. To attract buyers, sellers may lower their prices slightly to make their product more appealing. This price reduction leads to a decrease in the market price.
3. Increased demand: As the market price starts to decrease, consumers become more willing and able to purchase the product or service. This increased demand helps to reduce the surplus.
4. Equilibrium reached: The market price will continue to decrease until it reaches the equilibrium price, at which point the quantity supplied and the quantity demanded will match, eliminating the surplus. At this point, the market is said to be in a state of equilibrium.
Overall, when the market price is above the equilibrium price, market forces will drive the price downwards as producers compete to sell their surplus goods and consumers take advantage of lower prices. This adjustment process continues until the market reaches a state of equilibrium.