ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When producers have a surplus of supply, they must sell the product at lower prices. Consequently, more consumers will purchase the product, now that it’s cheaper.

Detailed explanation-2: -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-3: -Consumer surplus always increases as the price of a good falls and decreases as the price of a good rises. It is depicted visually by economists as the triangular area under the demand curve between the market price and what consumers would be willing to pay.

Detailed explanation-4: -Whenever there is a surplus, the price will drop until the surplus goes away. When the surplus is eliminated, the quantity supplied just equals the quantity demanded-that is, the amount that producers want to sell exactly equals the amount that consumers want to buy.

Detailed explanation-5: -If the price decreases, quantity demanded increases. This is the Law of Demand. On a graph, an inverse relationship is represented by a downward sloping line from left to right.