Assertion (A): Excess demand leads to a rise in prices in the long run.
Reason (R): In a situation of excess demand, the equilibrium level of output is less than the full employment level of output.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) is true but (R) is false.
Assertion (A): Excess demand leads to a rise in prices in the long run. — True. Demand above the full employment output pushes prices up in the long run.
Reason (R): In a situation of excess demand, the equilibrium level of output is less than the full employment level of output. — False. In excess demand, equilibrium output is more than the full employment level. Output below it is deficient demand.
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.” |