Various factors including price determine demand and supply of goods and services. The law of demand and supply states that an elevation in price lowers demand and increases the amount. Market forces are charged with the responsibility to maintain the economy at equilibrium. Changes in price result in movement along the demand and supply curves while variation in other factors causes a shift. The determinants of demand affect the amount of goods sellers are willing to avail to the market and the quantities consumers can purchase. The market is at equilibrium at the point of interaction between the demand and supply curves. It shows the point where the quantity demanded matches the amount supplied. However, in some cases, there is disequilibrium in the market which is caused by various factors. It does not require the intervention of external parties to restore the situation to normal.
When the market is not at equilibrium, there may be a shortage or surplus in the economy. It occurs when the amount of goods available in the economy does not match the ones being needed. In case of a shortage, consumers tend to suffer. They are forced to pay high prices for goods and services. The increased rates motivate producers to avail more products and services to the market hence restoring the market to equilibrium. On the other hand, a surplus occurs when the quantity of goods available in the market is in excess. As a result, there is a lot of competition for customers. The suppliers are forced to lower their prices to attract more customers. For fear of incurring losses, some seller stores their goods to sell when the rates improve. This results in a decrease in supply hence restoring the market to equilibrium.
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