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If price is forced to stay below equilibrium price:
- a)Excess supply exists
- b)Excess demand exists
- c)Either (a) or (b)
- d)Neither (a) nor (b)
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
If price is forced to stay below equilibrium price:a)Excess supply exi...
If the market price is below the equilibrium price, quantity supplied is less than quantity demanded that is excess demand exists, creating a shortage. The market is not clear. It is in shortage. Market price will rise because of this shortage.
If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.
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If price is forced to stay below equilibrium price:a)Excess supply exi...
Explanation:
When price is forced to stay below equilibrium price, it means that the price is set lower than what the market would naturally determine as the price that balances the quantity of goods supplied and the quantity of goods demanded. This situation creates a shortage in the market, which can be seen as excess demand.
Reasoning:
The reason why excess demand exists in this situation is that the price is lower than what suppliers are willing to sell at and lower than what consumers are willing to buy at. As a result, there is more demand for the product than there is supply, which creates a shortage. This shortage can be seen as excess demand because there are more buyers in the market than there are sellers, and buyers are willing to pay more than the current price to obtain the product.
Example:
For example, suppose the equilibrium price of a product is $10, and the government imposes a price ceiling of $5. This means that sellers cannot charge more than $5 for the product. Since the price is lower than the equilibrium price, suppliers will reduce their supply of the product because they are no longer incentivized to produce as much as they would at the equilibrium price. At the same time, consumers will be incentivized to buy more of the product because the price is lower than what they would typically have to pay. As a result, there will be excess demand for the product, which will cause a shortage in the market.
When price is forced to stay below equilibrium price, it means that the price is set lower than what the market would naturally determine as the price that balances the quantity of goods supplied and the quantity of goods demanded. This situation creates a shortage in the market, which can be seen as excess demand.
Reasoning:
The reason why excess demand exists in this situation is that the price is lower than what suppliers are willing to sell at and lower than what consumers are willing to buy at. As a result, there is more demand for the product than there is supply, which creates a shortage. This shortage can be seen as excess demand because there are more buyers in the market than there are sellers, and buyers are willing to pay more than the current price to obtain the product.
Example:
For example, suppose the equilibrium price of a product is $10, and the government imposes a price ceiling of $5. This means that sellers cannot charge more than $5 for the product. Since the price is lower than the equilibrium price, suppliers will reduce their supply of the product because they are no longer incentivized to produce as much as they would at the equilibrium price. At the same time, consumers will be incentivized to buy more of the product because the price is lower than what they would typically have to pay. As a result, there will be excess demand for the product, which will cause a shortage in the market.
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If price is forced to stay below equilibrium price:a)Excess supply existsb)Excess demand existsc)Either (a) or (b)d)Neither (a) nor (b)Correct answer is option 'B'. Can you explain this answer?
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