Assume a positively sloped supply curve and a negatively sloped demand curve. If the price of lemons is below the equilibrium price, economic surplus in the lemon market:
A)will be greater than if the price were at the equilibrium level.
B)will be less than if the price were at the equilibrium level.
C)will be the same as if the price were at the equilibrium level.
D)may be different than if the price were at the equilibrium level, but we cannot determine this without more information.

Question

Quizplus · Accepted Answer

If the price of lemons is below the equilibrium price, there will be a shortage of lemons as demand exceeds supply. This will lead to an increase in the price of lemons until it reaches the equilibrium price, where supply equals demand. At the equilibrium price, economic surplus is maximized. Therefore, if the price is below the equilibrium level, there will be a loss of economic surplus due to the shortage, resulting in less overall surplus compared to the equilibrium level.

Assume a Positively Sloped Supply Curve and a Negatively Sloped