Chapter 4: Problem 24

When quantity supplied is greater than quantity demanded,_____. a) price will fall to its equilibrium level b) price will rise to its equilibrium level c) price may rise, fall, or stay the same, depending on a variety of factors

Short Answer

Expert verified

When quantity supplied is greater than quantity demanded, the correct answer is: a) price will fall to its equilibrium level

Step by step solution

Analyze the relationship between supply and demand

Supply and demand are two basic economic concepts that determine the price of a product in the market. When the quantity supplied exceeds the quantity demanded, there is a surplus of the product in the market, which typically leads to a decrease in the price.

Understand the concept of equilibrium price

The equilibrium price is the price at which the quantity supplied exactly equals the quantity demanded in the market. At this price level, there is no surplus or shortage of the product, and the market effectively clears.

Evaluate the given statements based on the relationship between supply, demand, and equilibrium price

a) If the quantity supplied is greater than the quantity demanded, there is a surplus in the market, which puts downward pressure on the price. As the price decreases, the quantity demanded will increase and the quantity supplied will decrease, until they reach the equilibrium level. b) If the price were to rise, it would further increase the surplus in the market as the quantity supplied would increase even more and the quantity demanded would decrease, moving the market further away from equilibrium. c) The price behavior in this situation should not depend on other factors. As long as there is a surplus in the market, the price should decrease to reach equilibrium.

Select the correct answer

Based on our understanding of supply, demand, and equilibrium, we can conclude that when the quantity supplied is greater than the quantity demanded, the correct answer is: a) price will fall to its equilibrium level

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