Shortage, surplus and price mechanism, Macroeconomics

Shortage, Surplus and Price Mechanism:

A shortage is the situation in which the demand exceeds supply, which means producers are unable to meet the market demand for the product.

A surplus is the situation of excess supply in the market, and in which market demand falls short of the quantity supplied; which means the producers are unable to sell the entire produced goods in the market.

The price mechanism is the signalling and rationing device which prompts the consumers and producers to adjust with their demand and supply, correspondingly, in response to the shortage or surplus. Shortages make the price to raise prompting producers to produce more and consumers to demand for the fewer goods. Surpluses make prices to fall prompting the producers to supply the less and consumers to demand more goods. In either case, the price mechanism attempts to clear shortage or surplus in market.

 

Posted Date: 7/19/2012 3:26:42 AM | Location : United States







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