Question

When the price is ________ the equilibrium price, we would expect there to be a ________, causing the market to put ________ pressure on the price until it went back to the equilibrium price.
A. above; surplus; upward

B. above; shortage; downward

C. below; surplus; upward

D. below; shortage; downward

E. above; surplus; downward

Answer 1

Answer:

E. above; surplus; downward

Explanation:

When the price is above the equilibrium price, we would expect there to be a Surplus, causing the market to put downward pressure on the price until it went back to the equilibrium price.

Equilibrium price is the price at which demand and supply of goods are equal. If we plot in graph then we can see demand and supply curve intersect at the equilibrium price. In case price is above the equilibrium price then quantity supplied will be higher than quantity demanded then there will be surplus in the market, which create downward presure on the price as price was higher and consumer will purchase the product at low price. Therefore, both supply and demand forces price to be back at equilibrium.