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When the market price is lower than the equilibrium price the price of the product will continue to rise. The price will rise until it equal the equilibrium price.
A
The market price is below the equilibrium price.
When the market price is below its equilibrium value, with all else remaining equal, the demand for the good will rise, shifting the demand curve. The system will then move back into equilibrium with the new price and demand.
A price ceiling is binding when it is below the equilibrium price. It is the legal maximum price, so the market wants to reach equilibrium (which is above that) but can't legally. If it were above the equilibrium price it would not be binding because the market would reach equilibrium and the ceiling would have no effect. A price floor is binding when it is above the equilibrium price. You can use similar reasoning to that above. It is the legal minimum price. the market wants to reach equilibrium below that but can't legally.
The equilibrium price refers to the price point at which supply and demand are equal. This price can be found by applying the three basic properties of equilibrium.
When the market price is lower than the equilibrium price the price of the product will continue to rise. The price will rise until it equal the equilibrium price.
When the market price is lower than the equilibrium price the price of the product will continue to rise. The price will rise until it equal the equilibrium price.
A
The market price is below the equilibrium price.
When the market price is below its equilibrium value, with all else remaining equal, the demand for the good will rise, shifting the demand curve. The system will then move back into equilibrium with the new price and demand.
equilibrium price
equilibrium price
A price ceiling is binding when it is below the equilibrium price. It is the legal maximum price, so the market wants to reach equilibrium (which is above that) but can't legally. If it were above the equilibrium price it would not be binding because the market would reach equilibrium and the ceiling would have no effect. A price floor is binding when it is above the equilibrium price. You can use similar reasoning to that above. It is the legal minimum price. the market wants to reach equilibrium below that but can't legally.
The price that exists when a market is clear of shortage and surplus, or is in equilibrium.
equilibrium is the responsiveness of quantity demand to a change in price.
When supply and demand are balanced