The figure given below shows the demand and supply curves in the market for coffee. S 1 and D 1 are the original demand and supply curves.Figure 3.5

-When a freely functioning market is in disequilibrium:
A)the government must set a price ceiling.
B)the government must set a price floor.
C)the price and quantities demanded and/or supplied change until equilibrium is established.
D)it will continue to remain in disequilibrium.
E)it will reach equilibrium at a very high/low price.

Question

The figure given below shows the demand and supply curves in the market for coffee. S 1 and D 1 are the original demand and supply curves.Figure 3.5
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-When a freely functioning market is in disequilibrium:
A)the government must set a price ceiling. 
B)the government must set a price floor. 
C)the price and quantities demanded and/or supplied change until equilibrium is established. 
D)it will continue to remain in disequilibrium. 
E)it will reach equilibrium at a very high/low price.

Quizplus · Accepted Answer

When a market is in disequilibrium, the price and quantities demanded and/or supplied will adjust until equilibrium is established. This is because suppliers will increase the quantity supplied at a higher price and consumers will decrease the quantity demanded at a higher price. Similarly, suppliers will decrease the quantity supplied at a lower price and consumers will increase the quantity demanded at a lower price. Eventually, a price and quantity will be established which clears the market, and this is known as the equilibrium price and quantity.

The Figure Given Below Shows the Demand and Supply Curves