When prices are free to adjust over time,the market price of a good tends to:
A)rise above the equilibrium price in the long run.
B)equal the equilibrium price in the long run.
C)fall below the equilibrium price in the long run.
D)have no specific relationship to the equilibrium price.

Question

Quizplus · Accepted Answer

When prices are free to adjust over time, the market price tends to approach the equilibrium price in the long run. This is because if the price is above equilibrium, there will be a surplus of the product, and producers will lower the price to sell more. If the price is below equilibrium, there will be a shortage of the product, and producers will raise the price to increase profits. Eventually, the market will reach equilibrium where the quantity supplied equals the quantity demanded, and the price will stabilize at that level.

When Prices Are Free to Adjust Over Time,the Market Price