Question

Describe the role of shortages and surpluses in competitive markets?

Answer 1

The main role of deficit and surplus in the competitive market are the equilibrium-the state of the market, in which the volume of demand is equal to supply. The point of intersection of supply and demand is called the equilibrium point. The volume of sales at the point of equilibrium is called equilibrium volume. The price at the point of equilibrium is called the equilibrium price.  

In equilibrium, the market is balanced. The installed price suits both sellers and buyers. If the price is not equal equilibrium market is not balanced. And buyers and sellers have effective incentives to change the situation.