If the price system is allowed to function without interference and a surplus occurs, quantity demanded will fall and quantity supplied will rise as the price falls to its equilibrium level.

Question

BlackTom AI · Accepted Answer

When the price system is free to operate, a surplus means the market price is above equilibrium. 
Option True: This would imply that as price falls toward equilibrium, quantity demanded decreases and quantity supplied increases. That is inconsistent with the basic law of demand and supply, where a lower price typically increases quantity demanded and reduces quantity supplied. Therefore this option is incorrect.
Option False: As the price falls from a surplus level toward the equilibrium price, consumers generally buy more (quantity demanded rises) and producers generally sell less (quantity supplied falls). The statement asserts the opposite for each side, so it does not describe how the market moves toward equilibrium. Since the mechanism of a surplus entails pressure on price to decline, the described outcome in the statement is inaccurate. Therefore this option is correct.

MCD2020 - T1 - 2025 Tutorial Quiz 4 - Government Price-Setting and Market Efficiency

If the price system is allowed to function without interference and a surplus occurs, quantity demanded will fall and quantity supplied will rise as the price falls to its equilibrium level.

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MCD2020 - T1 - 2025 Tutorial Quiz 4 - Government Price-Setting and Market Efficiency

If the price system is allowed to function without interference and a surplus occurs, quantity demanded will fall and quantity supplied will rise as the price falls to its equilibrium level.

View Explanation

Log in for full answers

Similar Questions

Price decreases for a product are most likely to occur when

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

Which of the following describes how a market will respond when the scarcity of a good increases?

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

In the coffee market, which of the following changes will increase the price and decrease the quantity of coffee?

At an initial equilibrium, demand curve shifts to the left, supply curve remain unchanged. This creates ______________ and prices will _______________ restore the market equilibrium.

At an initial equilibrium, supply curve shifts to the left, demand curve remain unchanged. This creates ______________ and prices will _______________ restore the market equilibrium.

Due to the Covid-19 Pandemic, the demand for face masks and sanitizers have greatly increased which also increased the price for these products by 50%. Which of the following statements is true?

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

At an initial equilibrium, demand curve shifts to the left, supply curve remain unchanged. This creates and prices will _ restore the market equilibrium.

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