Which of the following best describes the process that occurs when the price of a good is below equilibrium?
A) The excess demand for the good provides an incentive for buyers to offer a higher price. These higher prices encourage sellers to supply more of the good.
B) The excess supply of the good provides an incentive for buyers to offer a higher price. These higher prices encourage sellers to supply more of the good.
C) The excess demand for the good provides an incentive for buyers to offer a lower price. These lower prices encourage sellers to supply less of the good.
D) The excess supply for the good provides an incentive for buyers to offer a lower price. These lower prices encourage sellers to supply less of the good.

Question

Quizplus · Accepted Answer

When the price of a good is below equilibrium, there is excess demand for the good which means that there are more buyers than sellers. This excess demand provides an incentive for buyers to offer a higher price. As buyers offer higher prices, this encourages sellers to supply more of the good, which ultimately increases the quantity supplied and reduces the excess demand, thus bringing the market back towards equilibrium.

Which of the Following Best Describes the Process That Occurs