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At P1 (price higher than Pe): the market does not clear and , therefore, it is...

At P1 (price higher than Pe): the market does not clear and , therefore, it is in a disequilibrum state. what is the relation between Qd and Qs at P1(i.w. which one is greater?) what kind of an Excess(Hss) exists in this market? Excess Demand/Shortage (HssD) OR Excess Supply/Surplus (XssS)? how will this P1 adjust (what is the price adjustement mechanism/ processor price rationing) in this case to eliminate any Xss in the market?

it is not a diagram

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Answer #1

Ans) Equilibrium is the point where quantity demanded is equal to the quantity supplied. This is market clearing point.

When price is above equilibrium price, there is surplus i.e quantity supplied exceeds quantity demanded.

Now, there will be downward pressure on the price and price will try to reach the equilibrium price. So, sellers will slowly decrease the price, which will increase quantity demanded and reduce quantity supplied. And this will continue till market reaches to equilibrium price.

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