When the rental price of capital is above the equilibrium price ________.
A)we have an excess supply of capital and the rental price should fall
B)we have an excess demand of capital and the rental price should fall
C)we have an excess supply of capital and the rental price should increase
D)we have an excess demand of capital and the rental price should increase
E)none of the above

Question

Quizplus · Accepted Answer

When the rental price of capital is above the equilibrium price, it means that the actual price is higher than the price at which the demand for capital is equal to the supply of capital. This results in an excess supply of capital, as more capital is being supplied than it is being demanded. The excess supply will lead to a decrease in the rental price of capital, as suppliers will try to decrease the price to clear the excess supply.

When the Rental Price of Capital Is Above the Equilibrium