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Price above the equilibrium leads to a surplus

Do markets naturally gravitate to the equilibrium, or is equilibrium just a matter of chance? What happens if the price is above or below the equilibrium? It turns out that the answer to the second question will also give us the answer to the first. Let's examine a market for which the price is above the equilibrium price.

To the right we show a market for some good or service where the current market price is PA, a price well above the equilibrium. At price PA the desired quantity demanded is QD but the desired quantity supplied is QS.14 Far more of this product is being offered for sale than is actually being sold at price PA. This leads to a surplus of this good equal to QD - QS. Supplier inventories are growing and retailers are not able to sell their stock of this product. Should we expect the market price to stay PA and the market to remain out of equilibrium, or will the market price naturally tend toward the equilibrium price?

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This is why we keep insisting on writing desired quantity demanded and desired quantity supplied. In cases where the market is not in equilibrium, desired quantities demanded and supplied are different from quantities actually bought and sold.

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