ECONOMICS
SCARCITY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Price will decrease to eliminate the surplus and restore equilibrium.
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Price will decrease to eliminate the shortage and restore equilibrium.
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Price will increase to eliminate the surplus and restore equilibrium.
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Price will increase to eliminate the shortage and restore equilibrium.
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Price will remain constant, because supply will increase to eliminate the shortage.
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Detailed explanation-1: -If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a shortage. The market is not clear. It is in shortage. Market price will rise because of this shortage.
Detailed explanation-2: -At this point, supply and demand curves intersect, the quantity supplied equals the quantity demanded, and the market is said to be in equilibrium. At equilibrium prices, both buyers and sellers maximize their economic gains relative to the limits of technology and the resources they have available.
Detailed explanation-3: -If the prevailing market price is above the equilibrium price, then there occurs the situation of excess supply.
Detailed explanation-4: -When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.
Detailed explanation-5: -i) When the price of a product prevailing in the market is above the equilibrium price, supply will be more than demand. Since the product can be sold at a price greater than the equilibrium price, the firm will produce more quantities of the given product and increase the supply.