In a competitive market, if the existing price is below the equilibrium price, market forces will drive the price:Multiple Choiceup and quantity supplied up.down and demand down.up and supply up.up and quantity supplied down.
Question
In a competitive market, if the existing price is below the equilibrium price, market forces will drive the price:Multiple Choiceup and quantity supplied up.down and demand down.up and supply up.up and quantity supplied down.
Solution
In a competitive market, if the existing price is below the equilibrium price, market forces will drive the price up and quantity supplied up.
Here's why:
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If the price is below the equilibrium price, it means that the demand for the product is higher than the supply.
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This high demand and low supply create a shortage in the market.
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To correct this shortage, producers will increase the price of the product. This is because they know that consumers are willing to pay more due to the high demand.
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As the price increases, producers are also incentivized to produce more of the product to take advantage of the higher price. This leads to an increase in the quantity supplied.
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Eventually, the price will reach a point where the quantity demanded by consumers equals the quantity supplied by producers. This is the equilibrium price.
So, the correct answer is: up and quantity supplied up.
Similar Questions
When supply and demand meet at the equilibrium point, prices in the market willMultiple Choicetrend toward that price.change demand.change supply.stay put.trend away from that price.
The equilibrium price is the point where:A.the quantity demanded equals the quantity supplied.B.suppliers make a profit.C.increased demand causes prices to rise.D.increased supply causes prices to rise.E.suppliers do not make a profit.
If the market price is above the equilibrium price:Multiple Choicea surplus will result and consumers will bid prices up.a shortage will occur and producers will produce more and lower prices.producers will make extremely high profits.a surplus will occur and producers will produce less and lower prices.
The law of supply and demand states that:Group of answer choicesQuantity demanded increases as price decreases and quantity supplied increases as price increasesIn the absence of market frictions, that the market price will adjust so that demand equals supplyIn the absence of market frictions, the market price will adjust so that the elasticity of demand equals the elasticity of supplyThe market will always be in equilibrium
If price is above the equilibrium level, competition among sellers to reduce the resulting:Multiple Choicesurplus will decrease quantity demanded and increase quantity supplied.shortage will increase quantity demanded and decrease quantity supplied.shortage will decrease quantity demanded and increase quantity supplied.surplus will increase quantity demanded and decrease quantity supplied.
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