Explain how price can be a regulator, that is, how it can ...

[RODY.ELKHALIL]

Explain how price can be a regulator, that is, how it can coordinate the plans of buyers and sellers.
 
  What will be an ideal response?

Question 2

In the above figure of a monopolistically competitive firm, the area of economic profit is
 
  A) ADB.
  B) ABC.
  C) P2AD P4.
  D) P2FEP5.

[Perkypinki]

Answer to Question 1

If the price is too high, the quantity supplied exceeds the quantity demanded so there is a surplus. The surplus forces the price lower. The lower price increases the quantity demanded and decreases the quantity supplied bringing the market to equilibrium, where the quantity demanded equals the quantity supplied and where the plans of buyers and sellers are coordinated. If the price is too low, the quantity demanded exceeds the quantity supplied so there is a shortage. The shortage forces the price higher. The higher price decreases the quantity demanded and increases the quantity supplied bringing the market to equilibrium, again coordinating the plans of buyers and sellers.

Answer to Question 2

D

[RODY.ELKHALIL]

Gracias!

[Mochi]

Excellent