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Chapter 4: Problem 4

When quantity demanded is greater than quantity supplied, _____. a) market price will rise b) market price will fall c) market price will stay the same

Short Answer

Expert verified
a) market price will rise

Step by step solution

01

Understanding the Law of Supply and Demand

The law of supply and demand is an economic principle that explains the way market prices are determined. According to this law, in a competitive market, the unit price of a product will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers; this point is called the equilibrium.
02

Identify the situation when quantity demanded is greater than quantity supplied

In our given situation, the quantity demanded is greater than the quantity supplied. This indicates that there is more demand for the product than the current supply. This is a situation of excess demand or a shortage in the market.
03

Determine the impact on market price

When there is excess demand or a shortage, consumers are willing to pay a higher price to obtain the desired product. Producers respond to this by increasing the price of the product. This continues until a new equilibrium is reached at a higher price level and the quantity demanded equals the quantity supplied. Based on this analysis, we can conclude that the correct answer is: a) market price will rise

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Most popular questions from this chapter

A decrease in demand while supply remains unchanged will lead to _____. a) an increase in equilibrium price and equilibrium quantity b) a decrease in equilibrium price and equilibrium quantity c) an increase in equilibrium price and a decrease in equilibrium quantity d) a decrease in equilibrium price and an increase in equilibrium quantity

If the price system is allowed to function without interference and a shortage occurs, quantity demanded will ______ and quantity supplied will _____ as the price rises to its equilibrium level. a) rise, rise b) fall, fall c) rise, fall d) fall, rise

At equilibrium price, quantity demanded is _____. a) greater than quantity supplied b) equal to quantity supplied c) smaller than quantity supplied

If the equilibrium price of corn is \(\$ 3\) a bushel, and the government imposes a floor of \(\$ 4\) a bushel, the price of corn will ______. a) increase to \(\$ 4\) b) remain at \(\$ 3\) c) rise to about \(\$ 3.50\) d) be impossible to determine

Which statement is true? (LO5, 6) a) A price floor is above equilibrium price and causes surpluses. b) A price floor is above equilibrium price and causes shortages. c) A price floor is below equilibrium price and causes surpluses. d) A price floor is below equilibrium price and causes shortages.
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