Question

When the price is ________ the equilibrium price, we would expect there to be a ________, causing the market to put ________ pressure on the price until it went back to the equilibrium price.

A. above; surplus; upward

B. above; shortage; downward

C. below; surplus; upward

D. below; shortage; downward

E. above; surplus; downward

Answer 1

When the price is above equilibrium, a surplus occurs, leading to downward pressure on the price. Conversely, a price below equilibrium causes a shortage, with upward pressure on price adjustments. The correct answer is E. above; surplus; downward.

Step-by-step explanation:

When the price is above the equilibrium price, we would expect there to be a surplus, causing the market to put downward pressure on the price until it went back to the equilibrium price. Therefore, the correct answer is E. above; surplus; downward.

In more detail, at prices above the equilibrium, the quantity supplied exceeds the quantity demanded. This results in a surplus of goods in the market, which creates pressure on sellers to lower their prices to sell these excess products and therefore brings the price down toward the equilibrium price where the quantity supplied equals the quantity demanded. Likewise, if the price were below the equilibrium, there would be a shortage, as the quantity demanded would outstrip the quantity supplied, causing upward pressure on the price as consumers compete to purchase the limited goods available.

Answer 2

E. above; surplus; downward

Step-by-step explanation:

When the price is above the equilibrium price, we would expect there to be a Surplus, causing the market to put downward pressure on the price until it went back to the equilibrium price.

Equilibrium price is the price at which demand and supply of goods are equal. If we plot in graph then we can see demand and supply curve intersect at the equilibrium price. In case price is above the equilibrium price then quantity supplied will be higher than quantity demanded then there will be surplus in the market, which create downward presure on the price as price was higher and consumer will purchase the product at low price. Therefore, both supply and demand forces price to be back at equilibrium.