Imagine a free market in which at a price of $10, quantity supplied is 40 units and quantity demanded is 50 units. Equilibrium price in this market:
A) is equal to $10.
B) is less than $10.
C) is greater than $10.
D) differs from $10 in an indeterminate direction.

Question

Quizplus · Accepted Answer

At the current price of $10, there is excess demand in the market as quantity demanded is greater than quantity supplied. This will put upward pressure on the price until it reaches a point where quantity supplied equals quantity demanded, i.e., the equilibrium price. Therefore, the equilibrium price will be higher than $10 in order to balance out the market.

Imagine a Free Market in Which at a Price of $10