To address the given question, let's first understand the concept of equilibrium price.
Equilibrium Price:
The equilibrium price is the price at which the quantity of a product supplied equals the quantity of the product demanded. In other words, it's the price at which the plans of buyers and sellers match.
Effect of Setting a Price Below Equilibrium:
If a price is set below the equilibrium price, it results in an imbalance between supply and demand:
1. Demand at Lower Price:
- As the price decreases, the quantity demanded by consumers increases because the product becomes more affordable.
2. Supply at Lower Price:
- Conversely, the quantity supplied by producers decreases because the product is less profitable to sell at a lower price.
When these two effects are combined, we see that at a price below the equilibrium:
- The quantity demanded exceeds the quantity supplied. This means consumers want to buy more than what producers are willing to sell.
Conclusion:
This situation leads to excess demand, also known as a shortage, where there are not enough products to satisfy consumer demand at that lower price.
Answer:
If the equilibrium price is set below the equilibrium price, there will be excess demand.
