Which of the following statements is NOT correct?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → When the market is not in equilibrium, the price tends to remain where it is.

Out of equilibrium, demand and supply do not match, and this mismatch pushes the price up or down.

Option (1) An ‘Invisible Hand’ is said to change the price whenever there is an imbalance in the market. — True. The ‘Invisible Hand’ raises the price when there is excess demand and lowers it when there is excess supply.

Option (2) When the market is not in equilibrium, the price tends to remain where it is. — False. When the market is not in equilibrium, there is a tendency for the price to change, not to stay where it is.

Option (3) In equilibrium, market demand equals market supply. — True. In equilibrium the plans of all buyers and sellers match, so market demand equals market supply.

Option (4) When market supply is not equal to market demand, the market is not in equilibrium. — True. Equilibrium needs market supply to equal market demand, so any gap means the market is not in equilibrium.

NCERT (2026-27): “5.1 Equilibrium, Excess Demand, Excess Supply … If at a price, market supply is greater than market demand, we say that there is an excess supply in the market at that price and if market demand exceeds market supply at a price, it is said that excess demand exists in the market at that price. Therefore, equilibrium in a perfectly competitive market can be defined alternatively as zero excess demand-zero excess supply situation. Whenever market supply is not equal to market demand, and hence the market is not in equilibrium, there will be a tendency for the price to change.”

“Out-of-equilibrium Behaviour From the time of Adam Smith (1723-1790), it has been maintained that in a perfectly competitive market an ‘Invisible Hand’ is at play which changes price whenever there is imbalance in the market. Our intuition also tells us that this ‘Invisible Hand’ should raise the prices in case of ‘excess demand’ and lower the prices in case of ‘excess supply’. Throughout our analysis we shall maintain that the ‘Invisible Hand’ plays this very important role. Moreover, we shall take it that the ‘Invisible Hand’ by following this process is able to reach the equilibrium. This assumption will be taken to hold in all that we discuss in the text.”