Markets tend toward equilibrium and, as a result, will tend to eliminate shortages and surpluses. Why?
Markets tend toward equilibrium because when a shortage exists, consumers who are unhappy about not being able to purchase the products or services they want will tend to bid the prices higher, moving the market toward equilibrium. If a surplus exists, suppliers are unhappy about not being able to sell the quantity of goods or services they wish, and will tend to lower prices in order to persuade consumers to purchase more goods and services.
You might also like to view...
Suppose a decrease in the supply of paper results in an increase in revenue. This indicates that
A) the demand for paper is elastic. B) the supply of paper is elastic. C) the supply of paper is inelastic. D) the demand for paper is inelastic.
If Japan is relatively capital rich and the United States is relatively land rich, and if food is relatively land intensive then trade between these two, formerly autarkic countries will result in
A) an increase in the relative price of food in the U.S. B) an increase in the relative price of food in Japan. C) a global increase in the relative price of food. D) a decrease in the relative price of food in both countries. E) an increase in the relative price of food in both countries.