When the price is above the market-clearing price,
A) the market-clearing price rises.
B) rising inventories cause the price to fall.
C) falling inventories cause the price to fall.
D) falling inventories cause the price to rise.
E) rising inventories cause the price to rise.

Question

Quizplus · Accepted Answer

When the price is above the market-clearing price, it means that the quantity supplied exceeds the quantity demanded, leading to rising inventories. This surplus typically causes sellers to lower prices to clear their excess inventory, hence the price falls.

When the Price Is Above the Market-Clearing Price