Question

What will happen to the price of candy on November 1, if there were a huge storm in the area and it didn't allow for shopping in the days leading up to (and the day of) Halloween? A) The price would not change. B) The price would fall to move the excess supply of candy. C) The price would rise to make up for the loss of profits. D) There is not enough information to make a determination.

Answer 1

The correct answer is B.

In a excess supply situation like the one described, the quantity available of a certain product is larger than the amount that consumers demand of it. The market will tend to move back towards the equilibrium, to an scenario in which demand and supply and therefore, the desires of consumers and producers, meet again.

When the price goes down, according to the law of demand (this law states that if the prices is modified, the quantity demanded will change in the opposite direction), more people will be willing to purchase candy at a relatively lower price and more people will be able to afford it. Therefore,  quantity demanded increses. The prices will continue on the same downward tendency until demand and supply meet.