Suppose that equilibrium price is denoted by p*. At any price greater than p*, there will be ________, and at any price lower than p*, there will be __________
Answer & explanation
Correct answer: option 1
The correct answer is Option 1:Excess supply, excess demand
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At any price greater than p* (equilibrium price):
- The quantity supplied exceeds quantity demanded, leading to excess supply or a surplus.
- Sellers may have unsold goods, leading to downward pressure on prices.
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At any price lower than p* (equilibrium price):
- The quantity demanded exceeds quantity supplied, leading to excess demand or a shortage.
- Buyers compete for the limited supply, pushing prices upward toward equilibrium.