Question

TRUE or FALSE. Please explain with proper reasoning and example to support your reasoning

If price is above the equilibrium price, price will tend to fall

Answer 1

The statement is true.

When the price is above the equilibrium price level, price will tend to fall. When price is above the equilibrium level there is a surplus in the economy i.e. supply is greater than the demand. Now in order to ensure that the amount produced get sold, the producers have to lower their price so that the consumers buy their entire produce. Thus, a lowering of the price is necessary in order to ensure that equilibrium in the market can occur.