Question

Why would a free market never operate at a quantity greater than the equilibrium quantity? Hint: What would be required for a transaction to occur at that quantity?

Short answer

If a free market works above equilibrium quantity, buyers are willing to pay less for that quantity of product, whereas producers are willing to charge more.

Step-by-step solution

Definition

Free market:

A free market is one in which there is no government interference and where the laws of demand and supply spontaneously interchange and provide the primary base for economic activities. Its most distinguishing feature is the lack of government compulsion and conditioning on transactions, as there is little or no government intervention or regulation. The forces of demand and supply determine the price of products and services, and they can easily find equilibrium without any intervention.

Explanation

Because a quantity greater than the equilibrium quantity would result in a gap between demand and supply pressures, a free market would never operate at a quantity greater than the equilibrium quantity. If a free market operated over its equilibrium quantity, an excess supply problem would arise. A change in demand or supply might lead a transaction to occur at a higher quantity level, resulting in new equilibriums.

If a free market works above equilibrium quantity, buyers are willing to pay less for that quantity of product, whilst producers are willing to charge more. As a result, there will be no commerce between the two parties, resulting in an excess supply situation.