Question

3. How do supply & demand together determine price? 4. What happens to price when the market has a surplus? 5. What happened to price when the market has a shortage?

Answer 1

Price is determined by the interaction of supply and demand.

3 .If both the the seller and the buyer agree on a price, an exchange of good and services can occur. In that case, the agreed price is called the 'equilibrium price'. Supply and demand are in balance. When either the demand or the supply changes, the equilibrium price will change too.

4. When there is a surplus ( the supply of goods increases ) and the demand stays unchanged, the price of goods would go lower. There would  be too many goods available on the market, and in order to sell them the producer would have to adjust ( lower ) the price to clear the market of excess supply.

5. When there is a shortage ( the supply of goods decreases ) and the demand remain unchanged, the price of goods would go higher. The quantity of goods demanded would be higher than the number of products available on the market. This may result in a shortage of products and the producers would demand a higher price for their offered goods.