Question

Under fixed price analysis of a product market, if quantity supplied is either in excess or falls short of quantity demanded price will change because of excess supply or demand. In this occasion

(a) How the equilibrium is determined? 

(b) Name the principle.

Answer 1

(a) Assume that the elasticity of supply is infinite that is the supply schedule is horizontal. In this situation the equilibrium output will be solemnly determined by aggregate amount of demand at this price in the economy.

(b) Keynesian analysis or effective demand Principle.