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Price Determination
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Price Determination
Price Equilibrium is found when supply and demand are equal.
Equilibrium is the point where both sellers and buyers are happy with the negotiated quality/price of the product.
Equilibrium price and the quantity are determined by the intersection of supply and demand. A change in supply, or demand, or both, will necessarily change the equilibrium price, quantity or both.
Excess supply is a surplus is a situation in which the quantity of a good or service supplied is more than the quantity demanded
Excess demand is when the market demand for a commodity is greater than its market supply, thus causing its market price to rise
Below is an increase in supply
Below is a decrease in supply
When Demand increases and shifts to the right.
A decrease in supply causes a shift to the left. Because there is a smaller supply therefore the demand must increase and then the price will increase.
If the price of housing was to decrease there would be an increased demand for affordable houses. There would be demand to increase the price, to reach the equilibrium point. In an area where there is excess supply, of houses prices must decrease so that buyers can afford to pay e.g. In Bude there is excess demand which is demonstrated because the prices are very high
