How do price changes affect equilibrium?

Business Dec 16, 2020

Expert Solution

Price changes affect equilibrium by increasing or decreasing demand. A lower price will increase demand for a product as more customers can afford the product while a higher price will encourage customers to purchase less or substitute their purchase. As a result, sales may increase to the point that there are product shortages and reduced profits, or sales may decrease to the point that stores have a surplus of unsold products and overall profits may drop.

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