Chapter 17: Problem 16

When market price is above equilibrium price, the market price will be driven (LO6) a) up by unhappy buyers b) up by unhappy sellers c) down by unhappy buyers d) down by unhappy sellers

Short Answer

Expert verified

The short answer is: When the market price is above the equilibrium price, the market price will be driven down by unhappy buyers.

Step by step solution

Identifying market price and equilibrium price

Market price is the price at which a good or service is currently being sold in the market. Equilibrium price is the price at which the quantity demanded by buyers equals the quantity supplied by sellers. In other words, it is the price at which the market balances.

Scenario: Market price above equilibrium price

When the market price is above the equilibrium price, it means that the product or service is being sold at a higher price than what the market deems fair. In this situation, sellers are happy because they receive more for their goods or services, but buyers are unhappy because they need to pay more than they think the good or service is worth.

Analyzing buyer and seller behavior

Unhappy buyers, who think the price is too high, will not be willing to buy at the current market price. This will lead to a decrease in the quantity demanded. On the other hand, sellers who are content with the higher market price will continue to supply at this level, leading to a surplus in the market.

Impact on the market price

The surplus in the market created by the imbalance between supply and demand will cause sellers to lower their prices in order to sell their goods or services. As a result, the market price will start to decrease until it reaches the equilibrium price, where the quantity demanded equals the quantity supplied.

Choosing the correct answer

Based on the analysis of buyer and seller behavior, the correct answer is: c) down by unhappy buyers

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!