1. Why is it essential for the economy to attain Market Equilibrium?
2. Define Market Shortage and market Surplus? Do the economy considers them as problem? Why or Why not? Expound your answer.
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Answer:
1.Equilibrium is important to create both a balanced market and an efficient market. If a market is at its equilibrium price and quantity, then it has no reason to move away from that point, because it's balancing the quantity supplied and the quantity demanded.
2.A Market Surplus occurs when there is excess supply- that is quantity supplied is greater than quantity demanded. In this situation, some producers won't be able to sell all their goods. This will induce them to lower their price to make their product more appealing. In order to stay competitive many firms will lower their prices thus lowering the market price for the product. In response to the lower price, consumers will increase their quantity demanded, moving the market toward an equilibrium price and quantity. In this situation, excess supply has exerted downward pressure on the price of the product.