← Market equilibrium

Explaining how equilibrium is restored

A recurring part asks HOW market forces restore equilibrium after a shift, at the ORIGINAL price — before you even get to draw the new equilibrium.

The market-forces explanation, every time

  • State the shortage or surplus that exists AT THE ORIGINAL PRICE once the curve has shifted — this is the starting point, not the new equilibrium itself.
  • A shortage (quantity demanded exceeds quantity supplied) puts UPWARD pressure on price, as buyers compete for limited supply.
  • A surplus (quantity supplied exceeds quantity demanded) puts DOWNWARD pressure on price, as sellers compete to clear excess stock.
  • Price then moves toward the NEW equilibrium, where quantity demanded once again equals quantity supplied — name the new Pe/Qe explicitly at the end.
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Jumping straight to the new equilibrium with no mechanism

Stating "the new equilibrium is P1, Q1" skips the actual explanation the question is testing — HOW market forces get there. Always name the shortage/surplus at the original price first, then the direction of pressure it creates, THEN the new equilibrium. Exam-style Explaining equilibrium restoration after a supply decrease A decrease in rental housing supply shifts the supply curve left. Explain how equilibrium would be restored. AT THE ORIGINAL PRICE: after supply shifts left, quantity supplied at the old rent is now LESS than quantity demanded — a SHORTAGE exists. PRESSURE: this shortage puts UPWARD pressure on rent, as prospective tenants compete for the now-scarcer available housing. ADJUSTMENT: rent rises, which reduces quantity demanded (some tenants priced out) and increases quantity supplied along the new, shifted supply curve (more landlords willing to rent at the higher price). NEW EQUILIBRIUM: rent settles at a new, higher Pe, with a new, lower Qe — where quantity demanded once again equals quantity supplied. ✓ All four steps — shortage/surplus, direction, adjustment mechanism, and the explicit new equilibrium — are what "explain how equilibrium is restored" is checking for.

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