When the market price of a good is below the equilibrium price, and all other determinants are unchanged
A) the quantity demanded will be greater than the quantity supplied.
B) the supply curve will be to the right of the demand curve.
C) a surplus will exist in the market.
D) the government will regulate the price of the good to ensure equilibrium is attained.

Question

Quizplus · Accepted Answer

At the equilibrium price, quantity supplied equals quantity demanded. However, as price falls the quantity demanded of a product tends to increase, while the quantity supplied decreases. The result is that quantity demanded will exceed the quantity supplied when the market price is below the equilibrium price, so eventually a shortage will exist. Of course, the presence of a shortage will put upward pressure on prices, so that the market price will move toward the equilibrium price.

When the Market Price of a Good Is Below the Equilibrium