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Purchasers will offer less than the prevailing price to undercut other purchasers. Sellers will ask a...

Purchasers will offer less than the prevailing price to undercut other purchasers. Sellers will ask a higher price for the quantities that they do have to sell. In other​ words, excess demand

causes upward pressure on price.

Why this sentence is not right？

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Homework Answers

Answer #1

Purchasers can "undercut" other purchasers by offering more than the prevailing price, and sellers can "undercut" other sellers by asking for a price that is less than the prevailing price. The statements are incorrectly posted.

However, if excess demand exists, it is caused by quantity demanded being higher than quantity supplied. Therefore, buyers will offer more than the prevailing price, which will decrease quantity demanded but will increase quantity supplied, which will continue to increase price upwards, until the price and quantity both reach their respective equilibrium levels.

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