Frequently Asked Question
"Why do some prices adjust more slowly?"
You have learned that equilibrium price is the price that equates quantity demanded with quantity supplied. And, you may have the impression that any shift in either demand or supply immediately gives rise to a new equilibrium price. But in many situations considerable time is required before a new equilibrium (often called market-clearing) price is established. In some markets, an increase in demand may not immediately elicit a rise in price sufficient to restore equality between quantity demanded and quantity supplied. Simply put, a shortage can occur even in the absence of price controls. The nursing profession is an example. Resource immobility, imperfect information, and government regulation are among the reasons why prices in some markets adjust slowly.
|
