Which one is true? Group of answer choicesExcess demand occurs when price is below the equilibrium price.Total surplus is not maximised in the equilibrium of a perfectly competitive market.Pareto efficient outcomes are always fair.When there is excess supply, prices will increase.None of the other answers are correct.
Question
Which one is true? Group of answer choicesExcess demand occurs when price is below the equilibrium price.Total surplus is not maximised in the equilibrium of a perfectly competitive market.Pareto efficient outcomes are always fair.When there is excess supply, prices will increase.None of the other answers are correct.
Solution
The statement "Excess demand occurs when price is below the equilibrium price" is true.
Here's why:
Equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers. When the price is below this equilibrium, consumers demand more of the product than producers are willing to supply, leading to excess demand.
The other statements are not correct:
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Total surplus is maximised in the equilibrium of a perfectly competitive market, not the opposite.
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Pareto efficient outcomes are not always fair. They only mean that no one can be made better off without making someone else worse off.
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When there is excess supply, prices will typically decrease, not increase, as producers try to sell their surplus goods.
So, the correct answer is "Excess demand occurs when price is below the equilibrium price".
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