During excess demanda)Market price is lower than the equilibrium priceb)Market price is higher than the equilibrium pricec)Market price is same as the equilibrium priced)None of theseCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Excess Demand:

Excess demand refers to the situation when aggregate demand (AD) is more than the aggregate supply (AS) corresponding to full employment level of output in the economy. It is the excess of anticipated expenditure over the value of full employment output.

Answer

Option a is correct in this case market price lies below the equilibrium price where demand is higher than supply thereby creating a situation of excess demand

Answer

No option A is not correct, Insted B option is correct Just think logically, as we know that as demanded increases the price also rises. Even you can see the graph .

Answer

Excess Demand and Market Price

Excess demand occurs in a market when the quantity of a good or service demanded by consumers exceeds the quantity supplied by producers at a given price level. In this situation, the market price is lower than the equilibrium price.

Explanation:
When there is excess demand in a market, it means that consumers are willing to buy more of a good or service at the current price than producers are willing to supply. This leads to a shortage in the market, as there is not enough supply to meet the demand.

Implications:
The market price is determined by the interaction of supply and demand. When there is excess demand, several implications arise:

1. Shortage: Excess demand leads to a shortage in the market, as the quantity demanded exceeds the quantity supplied.

2. Increased Competition: The shortage creates competition among consumers to secure the limited supply available. This competition can drive up the willingness of consumers to pay higher prices to obtain the goods.

3. Price Pressure: As consumers compete for the limited supply, the market price tends to increase. This is because consumers are willing to pay higher prices to secure the available goods.

4. Market Inefficiency: Excess demand indicates a market imbalance, as the quantity demanded exceeds the quantity supplied. This leads to inefficiencies in the allocation of resources.

Illustration:
Let's consider the market for smartphones. Suppose that at the current market price of $500, consumers are willing to buy 1,000 smartphones, while producers are only willing to supply 800 smartphones. In this scenario, there is excess demand of 200 smartphones.

Due to the excess demand, consumers may be willing to pay higher prices to secure the limited supply of smartphones. This can lead to price increases, as sellers take advantage of the excess demand.

Conclusion:
In summary, when there is excess demand in a market, the market price is lower than the equilibrium price. This occurs due to a shortage in supply, leading to increased competition among consumers and upward pressure on prices.

Answer

A.market price is less than equilibrium price it occurs a situation of excess demand

Top Courses for CommerceView all

Business Studies (BST) Class 12

Economics Class 12

Accountancy Class 12

Economics Class 11

Business Studies (BST) Class 11

Top Courses for Commerce

Top Courses for Commerce

Related Content

Commerce Courses

Other Courses

How To Prepare?

Related Exams

Company