Managerial Economicsintermediate
Match each market condition with its likely price pressure.
Answer
Price below equilibrium - Upward pressure from excess demand, Price above equilibrium - Downward pressure from excess supply, Demand increase, supply unchanged - Equilibrium price and quantity rise, Supply increase, demand unchanged - Equilibrium price falls and quantity rises
Explanation
### The pairs
| Item | Matches | Why |
|---|---|---|
| Price below equilibrium | Upward pressure from excess demand | At the low price, buyers demand more than sellers supply, creating pressure for price to rise. |
| Price above equilibrium | Downward pressure from excess supply | At the high price, sellers offer more than buyers demand, creating pressure for price to fall. |
| Demand increase, supply unchanged | Equilibrium price and quantity rise | The higher demand intersects unchanged supply at a higher price and quantity. |
| Supply increase, demand unchanged | Equilibrium price falls and quantity rises | The greater supply intersects unchanged demand at a lower price and higher quantity. |
### Terms
- **Excess demand**: Quantity demanded exceeds quantity supplied at the current price.
- **Excess supply**: Quantity supplied exceeds quantity demanded at the current price.
### Remember
Check which curve shifts and hold the other curve fixed before predicting the new equilibrium.
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