Final answer:
When the price is higher than the equilibrium price, the quantity bought and sold decreases, leading to a surplus. The market typically adjusts, bringing the price back towards equilibrium.
Step-by-step explanation:
When price exceeds its equilibrium value, the quantity bought and sold typically decreases. This is because at a price higher than the equilibrium price, the quantity supplied exceeds the quantity demanded, resulting in a surplus. Market forces will typically drive the price down towards equilibrium, where the quantity supplied equals the quantity demanded.
Understanding Market Equilibrium
In any market, including both product and labor markets, changes in supply and demand can affect the equilibrium price and quantity. When there is an increase in demand with a constant cost, the supply meets the increased demand causing the quantity sold to increase while the equilibrium price remains the same. In contrast, if the cost is increasing and supply cannot meet the increased demand, we observe a rise in the equilibrium price. Conversely, if there is an increase in supply due to factors such as new technology or economies of scale, and this increase outpaces the increase in demand, there will be a declining equilibrium price.