BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated. If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.

Detailed explanation-2: -A surplus exists when the price is above equilibrium, which encourages sellers to lower their prices to eliminate the surplus. A shortage will exist at any price below equilibrium, which leads to the price of the good increasing.

Detailed explanation-3: -(a) When the demand for goods becomes equal to the supply of goods then the market is said to be in equilibrium. When supply is more than demand then there is surplus in the market and when the supply is less than demand then there is shortage in the market.

Detailed explanation-4: -The price will rise until the shortage is eliminated and the quantity supplied equals quantity demanded. In other words, the market will be in equilibrium again.