Assume that the price in a market is currently below the equilibrium price. explain exactly why that situation will change by putting the steps in the correct order

General
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assume that the price in a market is currently below the equilibrium price. explain exactly why that situation will change by putting the steps in the correct order.

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Assuming that the price in a market is currently below the equilibrium price, there are several steps in the correct order that explain why this situation will change:

  1. Excess Demand: When the price is below the equilibrium level, it creates excess demand in the market. This means that the quantity demanded by consumers exceeds the quantity supplied by producers at that price.

  2. Increased Demand: The existence of excess demand at a lower price attracts more buyers to the market. Consumers recognize the opportunity to purchase goods or services at a relatively lower price, which leads to an increase in demand.

  3. Rising Prices: As demand increases, sellers are able to charge higher prices for their goods or services. The competition among buyers for limited supply puts upward pressure on prices. This gradual increase in prices is a result of the excess demand.

  4. Market Adjustment: As prices rise, the excess demand in the market gradually decreases. The quantity demanded begins to decline, and the quantity supplied begins to increase. This adjustment process continues until the market reaches equilibrium, where the quantity demanded equals the quantity supplied.

  5. Equilibrium Price Reached: Once the market reaches equilibrium, the price stabilizes at a level where the quantity demanded and the quantity supplied are in balance. At this point, there is no excess demand or excess supply in the market.

  6. Market Stability: With the price at the equilibrium level, the market becomes stable, and there is no immediate pressure for prices to rise or fall further. The market can then operate efficiently, with buyers and sellers making transactions at the agreed-upon equilibrium price.

In summary, when the price in a market is below the equilibrium level, excess demand occurs, leading to an increase in demand, rising prices, market adjustment, and eventually reaching a new equilibrium price. This sequence of steps ensures that the market adjusts to balance supply and demand.