If the price prevailing in the market is above the equilibrium price, then there will be:
Answer & explanation
Correct answer: option 2
The correct answer is Option 2: Excess supply
Equilibrium price is the price at which quantity demanded = quantity supplied.
- If the market price is above the equilibrium price, sellers want to sell more, but buyers are not willing to buy as much at the higher price.
- This results in excess supply (surplus) because quantity supplied > quantity demanded.
- To clear the surplus, sellers reduce prices, pushing the market back toward equilibrium.