How is price formed/determined concerning Macroeconomics and the terms of shortage and surplus?

Expert Solution

In macroeconomics price is known as General price level and its determination depends upon the aggregate demand and aggregate supply. Aggregate supply is an upward sloping curve an aggregate demand is a downward sloping one. And their interaction determine the output level in the economy and the overall price level
In microeconomics the concept of shortage and surplus arise. Generally market is said to be in equilibrium when there is no shortage or surplus so that there is no excess demand and excess supply.
However there can be cases when the price in the market is higher than the equilibrium and in that case there will be a surplus in the market. This is because the quantity supplied by the suppliers will be greater than the quantity demanded by the buyers.
At other times there can be shortages in the market when the price level is lower than the equilibrium price so that the quantity demanded exceeds the quantity supplied. Both of these conditions are a case of short run and the market will reach its equilibrium level in the long run.

Rahul Sunny answered 1 year ago

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