Excess demand is a situation in which the equilibrium level of output is __________ the full employment level of output.
Which of the following options fills the blank correctly?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → more than
In excess demand, demand is more than the output produced at full employment. So equilibrium output is more than the full employment level, and prices rise in the long run.
NCERT (2026-27): “4.4 Some More Concepts … The equilibrium level of output may be more or less than the full employment level of output. If it is less than the full employment of output, it is due to the fact that demand is not enough to employ all factors of production. This situation is called the situation of deficient demand. It leads to decline in prices in the long run. On the other hand, if the equilibrium level of output is more than the full employment level, it is due to the fact that the demand is more than the level of output produced at full employment level. This situation is called the situation of excess demand. It leads to rise in prices in the long run.” |