Equilibrium price of an essential item of consumption is too high. Explain what possible steps can be taken to bring down the equilibrium price but only through the market forces. Explain the series of changes that occur in the market.
When prices of essential commodities is greater than the equilibrium price, then market supply is more than the market demand. This implies that there is situation of excess supply in the market. This excess supply will increase competition among the sellers; consequently, they will reduce the price in order to sell more of their output. The fall in price will continue until market demand equals market supply.
Excess Demand and Excess Supply have been extensively covered in the study material. You can follow the path mentioned below to view this topic.
Chapter- Market Equilibrium, Lesson- Introduction of Concept of Market Equilibrium, Excess Demand and Excess Supply, Topic- Explanation of Excess Demand and Excess Supply- Diagrammatically.
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this is a situation of excess supply when the producers are not able to sell all that they want at the particular price. in order to sell more they reduce the price of the good. reduction in price increases the demand leading to expansion in demand and contraction in supply due to lower profit margin and the price also falls. thus the excess supply falls and equilibrium is reached