Final answer:
A market price above equilibrium leads to a surplus, causing market prices to fall. A price below equilibrium causes a shortage, resulting in rising prices. A price ceiling can be a real-world example of the latter situation.
Step-by-step explanation:
When the market price is above the equilibrium level, there is generally a surplus of goods or services in the market. This occurs because the higher price reduces the quantity demanded by consumers while encouraging producers to supply more, resulting in excess supply. Conversely, when the market price is below the equilibrium level, a shortage is typically observed. In this scenario, the low price increases the quantity demanded by consumers but discourages producers from supplying enough to meet this demand, leading to a shortfall in supply.
In the case of a surplus, one would expect market forces to drive the price down as suppliers attempt to sell their excess stock by reducing prices, leading to balance in the market over time. Similarly, in the event of a shortage, the limited supply would lead to an increase in price as consumers compete for the available products, again pushing the market towards equilibrium.
A concrete example is a price ceiling, which is a maximum price set by the government typically below the market equilibrium. This government intervention causes the quantity demanded to rise while the quantity supplied falls, since producers are less inclined to produce at the lower price, resulting in a persistent shortage.