If prices are flexible, what occurs when there is a surplus of widgets? If prices are flexible, what occurs if there is a shortage of trinkets?

When there is a surplus of widgets and prices are flexible, the market tends to reach equilibrium through the adjustment of prices. Here's how it works:

1. Surplus of widgets:
- A surplus occurs when the quantity of widgets supplied exceeds the quantity demanded at the current price level.
- To address the surplus, suppliers will face increased competition and may choose to lower the price of widgets.
- Lowering the price helps attract more buyers, consequently reducing the surplus as consumers are willing to purchase widgets at the lower price.
- As the price decreases, the quantity demanded increases, and the quantity supplied decreases until they eventually reach equilibrium, where the quantity supplied equals the quantity demanded.

On the other hand, if there is a shortage of trinkets and prices are flexible, the market also tends to adjust through price changes. This is how it typically unfolds:

2. Shortage of trinkets:
- A shortage occurs when the quantity of trinkets demanded exceeds the quantity supplied at the current price level.
- As consumers compete to obtain the limited supply of trinkets, the suppliers might choose to increase the price.
- By raising the price, suppliers can maximize their profits due to the high demand for trinkets.
- As the price increases, the quantity supplied also increases while the quantity demanded decreases until they reach equilibrium.

In both scenarios, the flexibility of prices plays a crucial role in allowing the market to adjust. When there is a surplus, flexible prices incentivize sellers to lower prices until supply and demand balance out. Similarly, in the case of a shortage, flexible prices encourage suppliers to increase prices until supply and demand match. Ultimately, these adjustments help restore equilibrium in the market.