Prices below equilibrium

[jaiyeolapeter]

I am getting this concept miscontrued. If price are displayed below equillibrum, what happens to supply? is it excess of demand?

 

[S2000magician]

If you have a normal (upward sloping) supply curve and a normal (downward sloping) demand curve, a price below equilibrium will lead to excess demand, which will cause suppliers to raise the price until it equals the equilibrium price. In this situation, you have a stable equilibrium.
With a downward sloping supply curve, you may have an unstable equilibrium: a price below the equilibrium price will lead to excess supply, and a price decrease.

 

[StageRight]

If prices are below equilibrium there is excess demand compared to supply. Suppliers increase the price to eqilibrium.

 

[jaiyeolapeter]

So at what point do we have an unstable euillibrum?

 

[S2000magician]

StageRight wrote:If prices are below equilibrium there is excess demand compared to supply. Suppliers increase the price to eqilibrium.

This is true only if you have a stable equilibrium.
It isn’t true for an unstable equilibrium.

 

[S2000magician]

jaiyeolapeter wrote:So at what point do we have an unstable euillibrum?

Downward sloping supply curve, less steep than the demand curve.