A surplus occurs when supply exceeds demand, creating downward pressure on prices. Conversely, a shortage arises when demand surpasses supply, leading to upward price pressure. Market equilibrium is achieved when supply matches demand.
A surplus exists when the quantity supplied of a good or service exceeds the quantity demanded at the current price, causing downward pressure on price. Conversely, a shortage occurs when the quantity demanded exceeds the quantity supplied, leading to upward pressure on price. The price mechanism plays a crucial role in ensuring that the market reaches an equilibrium where quantity supplied equals quantity demanded.
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