Question

Assume that the market equilibrium price is 50 cents for a pound of bananas, and the quantity sold is roughly 10 pounds. What kind of price control could generate an excess supply of bananas

Answer 1

Answer:

The price control that could generate excess supply is to increase the price to 75 cents which would give the suppliers an incentive to supply since the potential profits have risen.

Explanation:

Market equilibrium can be defined as the point where market supply and market demand are equal,leading to stabilization of prices. The forces of supply and demand usually control the price at which goods and services will be set. Economists like Adam Smith utilized the concept of the free market to stipulate that the forces of supply and demand in a market will no government interference always push the market to it's equilibrium. Equilibrium generally means that the forces in the market have no incentive of changing their behavior.

Supply can be defined as the act of making something available to someone. In the context of an economy, the suppliers make goods and services available to the consumers. Demand on the other hand is the quantity of a good or service that consumers are willing purchase at a certain price. When demand exceeds the supply, the suppliers increase the price and when the supply exceeds the demand, the price drops.

In our case, increasing the price to 75 cents would give the suppliers an incentive to supply since the potential profits have risen. This would lead to excess supply since the price is set above the equilibrium price.