Question

If the price is above the equilibrium level, would

you predict a surplus or a shortage? If the price is below

the equilibrium level, would you predict a surplus or a

shortage? Why?

Short answer

If prices are above the equilibrium level, there would be surplus

and if the price is below the equilibrium level, there would be a shortage.

Step-by-step solution

Step 1.If prices are above equilibrium level(supply exceeds quantity demanded)

Explanation:

When prices are above the equilibrium level, increased prices will be profitable for firms to produce more. Producers expand production & supply and the quantity demanded will decrease at a higher price.

Step 2.If prices are below equilibrium level(quantity demanded exceed supply)

Explanation:

When the prices are below the equilibrium level, there will be a shortage. At lower prices, buyers' purchases increase. Producers however are producing less because of lowered profits.