Question

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Explanation:

1. Market equilibrium is defined as the point where the quantity of a good that producers want to sell equals the quantity consumers want to buy.
2. When the market price is above the equilibrium level, the quantity supplied will exceed quantity demanded, creating a surplus. This surplus puts downward pressure on the price as sellers compete to sell excess goods.
3. When the market price is below the equilibrium level, the quantity demanded will exceed quantity supplied, creating a shortage. This shortage puts upward pressure on the price as buyers compete for limited goods.
4. Prices act as signals because they communicate information about scarcity and consumer/producer preferences, automatically adjusting to balance supply and demand.

Answer:

Equilibrium occurs when:
Quantity supplied $\boldsymbol{equals}$ quantity demanded

If price is too high:
Result = $\boldsymbol{Surplus\ (quantity\ supplied > quantity\ demanded)}$ $
ightarrow$ price $\boldsymbol{decreases}$

If price is too low:
Result = $\boldsymbol{Shortage\ (quantity\ demanded > quantity\ supplied)}$ $
ightarrow$ price $\boldsymbol{increases}$

Think:
Why do economists say prices are "signals"?
Prices signal information about the relative scarcity of a good. A rising price signals a shortage (high demand/low supply), encouraging more production and less consumption. A falling price signals a surplus (low demand/high supply), encouraging less production and more consumption, helping the market automatically adjust toward equilibrium.