ECONOMICS
DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the product’s price falls below its market-clearing level
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the product’s market-clearing level reduces overall demand
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the people who buy the product consume more than they need
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the businesses producing the product become less efficient
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Detailed explanation-1: -What Happens If the Price Falls Below the Market Clearing Price? If price falls below the market clearing price, buyers will buy up all of the available goods, causing a shortage in the market. This shortage causes prices to rise, until they reach the equilibrium price.
Detailed explanation-2: -Shortages occur when demand is greater than supply. This means that the price is lower than the equilibrium price, meaning that the quantity demanded is a lot bigger than the quantity supplied, as producers are less willing to make more goods if they receive a lower price.
Detailed explanation-3: -A shortage is a situation in which demand for a product or service exceeds the available supply. When this occurs, the market is said to be in a state of disequilibrium. Usually, this condition is temporary as the product will be replenished and the market regains equilibrium.
Detailed explanation-4: -In economics, there are three main reasons or causes of shortages-an increase in demand, a decrease in supply, or government intervention (price ceilings for example).
Detailed explanation-5: -A surplus exists when the price is above equilibrium, which encourages sellers to lower their prices to eliminate the surplus. A shortage will exist at any price below equilibrium, which leads to the price of the good increasing.