Question

When there is excess demand for a product in a market, a. price must be above the equilibrium price. b. producers will reduce output and sales will fall. c. price must be below the equilibrium price. d. price will tend to fall.

Answer 1

Answer:

C) Price must be below the equilibrium price

Explanation:

In a perfect competition, price is determined by the industry and no individual consumer or producer can manipulate the price. When something is in equilibrium, it refers to a balanced state with no will to change. In a perfectly competitive market, equilibrium is a point where supply is equal to demand. Market supply is the sum of individual supplies by all producers of the same commodity in the market. Market demand I'd the sum of individual demand by all consumers of a commodity in a market.

  The price at which a market becomes equilibrium is the equilibrium price and the quantity supplied or demanded at the equilibrium price is the equilibrium quantity. When a price is above the equilibrium price, suppliers tend to increase the supply for profits. This could cause a condition of excess supply. In order to sell out the excesses, the price will have to go below the equilibrium price.

  When a price is below the equilibrium price, consumers tend to buy at a reduced price. This causes excess demand. Here, consumers are willing to pay higher to meet the exorbitant demand and thus, the price rises to the equilibrium level.