Explain what would happen if, in an unregulated or free market, price were to be lower than the equilibrium?

Answer 1

If I recall correctly, that would be called *deflation* and is normally considered a prelude to a depression, because prices of goods generally do not drop that low unless there just is not enough money at *all* levels of society to go around. It is also a normal consequence of what happens when wealth gets *far* too concentrated into the hands of the few and fewer. Eventually the bottom falls out of demand, and the supply just *will not* be sold at any price. Why? Too many people, not enough loose cash.

Note the word "normal" up there though. Thanks to the WTO and NAFTA re-defining wages and standards of living downward on an *aggressive and entirely premature* basis, the rich no longer "have to worry" about depression.

Why? Because there is now *no bottom*. Jobs can be outsourced, and if need be, *demand for goods* can be outsourced too as citizens of developed nations and mature economies get more and more *displaced* and *shut out* of their own societies.

Of course, the whole thing stinks and is utterly fallacious, as the 3rd/developing world just does NOT have enough resources to pick up the slack, in terms of labor, supply, demand, anything, but don't tell them back-stabbing CEOs any of that, they won't hear it.

They are too busy playing *Highlander* with the wealth of the Earth, reducing Economics to the One who has ALL and the ALL who have NONE.

Answer 2

If I recall correctly, that would be called *deflation* and is normally considered a prelude to a depression, because prices of goods generally do not drop that low unless there just is not enough money at *all* levels of society to go around. It is also a normal consequence of what happens when wealth gets *far* too concentrated into the hands of the few and fewer. Eventually the bottom falls out of demand, and the supply just *will not* be sold at any price. Why? Too many people, not enough loose cash.

Note the word "normal" up there though. Thanks to the WTO and NAFTA re-defining wages and standards of living downward on an *aggressive and entirely premature* basis, the rich no longer "have to worry" about depression.

Why? Because there is now *no bottom*. Jobs can be outsourced, and if need be, *demand for goods* can be outsourced too as citizens of developed nations and mature economies get more and more *displaced* and *shut out* of their own societies.

Of course, the whole thing stinks and is utterly fallacious, as the 3rd/developing world just does NOT have enough resources to pick up the slack, in terms of labor, supply, demand, anything, but don't tell them back-stabbing CEOs any of that, they won't hear it.

They are too busy playing *Highlander* with the wealth of the Earth, reducing Economics to the One who has ALL and the ALL who have NONE.

Answer 3

If the price of an item is too low, for example if the price is regulated, shortages will develop. That is because there will be too many buyers, and not enough supply. If the price is not regulated, the price will rise to the equilibrium level in response to demand.

Answer 4

I'm not sure what you mean by equilibrium, but most items will reflect or respond to market forces. For example, the price of oil and gas. No matter how much big oil attempts to gouge the public eventually the supply will exceed the demand and prices will fall. Economists seem to fear deflation even more than they do inflation. However, as we sometimes see in areas such as housing costs, defation can definitely work for the benefit of the lower and middle class by giving us more buying power. The rich hate that.

Answer 5

That means demand could increase or the supply would decrease or both. Until the price increased to the equilibrium.

Answer 6

you would experience a gap between supply and demand.

Some producers may not produce at the lower price, some producers may not produce as much at the lower price ----> less supply causes upward pressure on the price

more people demand the product -----> more demand causes upward pressure on the price

The price will increase and tend to drift toward equilibrium

Answer 7

There would be a shortage, price would increase until supply and demand meet at the equilibrium point.