Assume that the equilibrium price for a good is $5. If the market price is $10, a:
A) shortage causes the price to decline toward $5.
B) surplus causes the price to rise above $10.
C) shortage causes the price to rise above $10.
D) surplus causes the price to decline toward $5.

Question

Quizplus · Accepted Answer

When the market price for a good is above the equilibrium price, it creates a surplus because producers are willing to supply more of the good at the higher price, but consumers are willing to buy less of the good at the higher price. As a result, there is an excess of the good on the market, and producers will need to lower the price in order to sell their surplus. This will drive the price down towards the equilibrium price of $5.

Assume That the Equilibrium Price for a Good Is $5