Question

A buyer is willing to buy a product at a price greater than or equal to his willingness to pay but would refuse to buy a product at a price less than his willingness to pay.

A) True
B) False

Answer 1

The statement about sellers not willing to sell below the equilibrium price is false (B). Various factors, like excess inventory, competition, and cost structures, can lead to sellers offering goods below equilibrium price to clear stock, penetrate markets, or due to perishability.

Step-by-step explanation:

Equilibrium Price Misconceptions

A prevalent misconception in economics is that equilibrium price is the only price at which transactions occur within the goods market. However, in reality, sellers may choose to sell products for less than the equilibrium price due to various reasons. For instance, a seller facing excess inventory might reduce prices to clear out stock, even though it is below equilibrium. This scenario can be further exacerbated in highly competitive markets or during promotions and sales events.

Furthermore, some sellers might adopt a penetration pricing strategy to enter a new market, establishing a customer base by initially selling at lower prices. Besides, sellers have different cost structures: those with lower costs can afford to sell at lower prices and still make a profit. Lastly, in the short term, factors such as perishability of goods could compel sellers to sell at lower rates to minimize losses. Thus, the statement "In the goods market, no seller would be willing to sell for less than the equilibrium price." is not universally true.