Multiple Choice QuestionAt a price lower than equilibrium there is a _____ and there will be a tendency for prices to ______.Multiple choice question.surplus; fallshortage; riseshortage; fallsurplus; rise
Question
Multiple Choice QuestionAt a price lower than equilibrium there is a _____ and there will be a tendency for prices to ______.Multiple choice question.surplus; fallshortage; riseshortage; fallsurplus; rise
Solution
The correct answer is "shortage; rise".
Here's why:
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Equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers.
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If the price is lower than the equilibrium price, the quantity demanded by consumers will be greater than the quantity supplied by producers. This situation is known as a shortage.
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In response to a shortage, producers will tend to increase prices to balance the demand and supply. Therefore, there will be a tendency for prices to rise.
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