What usually occurs in a competitive market when a product has a price above equilibrium?

In a competitive market, when a product’s price is set above the equilibrium price, a surplus typically occurs. The equilibrium price is where the quantity demanded by consumers equals the quantity supplied by producers. When the price rises above this level, producers are incentivized to supply more of the product due to the higher potential profit margins. At the same time, consumers are less willing to purchase the product at the higher price, resulting in decreased demand.

As a result, the quantity supplied exceeds the quantity demanded, creating a surplus. This surplus indicates that there are more goods available in the market than what consumers are willing to buy at that elevated price. Over time, this surplus puts downward pressure on the price, with producers likely reducing their prices to clear the excess stock, eventually leading to a return toward equilibrium.

Understanding this concept is crucial, as it illustrates the self-correcting nature of competitive markets, where prices adjust based on supply and demand dynamics.