Which of the following statements about how the price adjusts in a perfectly competitive market is NOT correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → As the price falls from above the equilibrium level, quantity demanded falls and quantity supplied rises.
Away from equilibrium, buyers and sellers push the price back. As the price changes, quantity demanded and quantity supplied move in opposite directions.
Option (1) As the price falls from above the equilibrium level, quantity demanded falls and quantity supplied rises. — False. When the price falls, buyers want more and firms offer less. So quantity demanded rises and quantity supplied falls; the statement has them the other way round.
Option (2) Under excess demand, some consumers who cannot get enough of the good are willing to pay more than the prevailing price. — True. Buyers who get none or too little offer a higher price, so the price tends to rise.
Option (3) Under excess supply, some firms that cannot sell the quantity they want lower their price. — True. Firms left with unsold output cut their price to sell it.
Option (4) As the price rises from below the equilibrium level, quantity demanded falls and quantity supplied rises. — True. As the price rises, buyers want less and firms offer more, until the two are equal at p*.
NCERT (2026-27): “5.1.1 Market Equilibrium: Fixed Number of Firms … Some consumers who are either unable to obtain the commodity at all or obtain it in insufficient quantity will be willing to pay more than p1. The market price would tend to increase. All other things remaining the same as price rises, quantity demanded falls and quantity supplied increases. The market moves towards the point where the quantity that the firms want to sell is equal to the quantity that the consumers want to buy. This happens when price is p* , the supply decisions of the firms only match with the demand decisions of the consumers.” “5.1.1 Market Equilibrium: Fixed Number of Firms … Some firms will not be then able to sell quantity they want to sell; so, they will lower their price. All other things remaining the same as price falls, quantity demanded rises, quantity supplied falls, and at p*, the firms are able to sell their desired output since market demand equals market supply at that price. Therefore, p* is the equilibrium price and the corresponding quantity q* is the equilibrium quantity.” |