equilibrium price determination

• Equilibrium: S=D
• Excess supply = above equilibrium (fall in price)
• Excess demand= Below equilibrium (rise in price by consumers)
• Price mechanism= interaction between S & D to determine price
• Price mechanism?

  1. signalling
  2. incentivising
  3. rationing
• Fall in price:


  Consumers bid price up= fall in QS= fall in profit
• Rise in price:


  producers follow demand= more QS= Incentives to Profit maximise= More QS= fall Qd due to rise in price