Question

When the price is above the equilibrium, explain

how market forces move the market price to

equilibrium. Do the same when the price is below the

equilibrium.

Short answer

yes, 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. Concept 

Equilibrium refers to the point where,

Quantity demanded = Quantity supplied.

If prices are above equilibrium level,

supply exceeds quantity demanded.

If prices are below equilibrium level,

quantity demanded exceed supply.

Step 2. Explanation

When the price is above the equilibrium, the quantity supplied would be greater than the quantity demaned. This would create a surplus in the market. Such unsold surplus forces the sellers to reduce quantity supplied, thus bringing back market to the equilbrium level.

When prices are below the equilbrium, the quantity demanded would be higher than the quantity supplied. This would create a shortage in the market. This shortage would force sellers to increase quantity supplied bringing the market back to the equilbrium level.