Question:
Market prices that are above equilibrium tend to create:
Market prices that are above equilibrium tend to create:
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Exam Tip: To remember the impact of price changes:
Price above Equilibrium \(\rightarrow\) Surplus (Excess Supply)
Price below Equilibrium \(\rightarrow\) Shortage (Excess Demand)
This is a fundamental concept in microeconomics.
Price above Equilibrium \(\rightarrow\) Surplus (Excess Supply)
Price below Equilibrium \(\rightarrow\) Shortage (Excess Demand)
This is a fundamental concept in microeconomics.
Updated On: Aug 27, 2026
- Surpluses of goods
- Declines in resource costs
- Shortage of goods
- Buyers' market
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The Correct Option is A
Solution and Explanation
Step 1: Understanding the Concept:
This question tests the basic principles of market equilibrium (demand and supply). The equilibrium price is the price at which the quantity demanded equals the quantity supplied.
Step 2: Analyzing Price Above Equilibrium:
When the market price is above the equilibrium price:
• At this higher price, quantity supplied (QS) will be higher because producers are willing to supply more.
• At the same higher price, quantity demanded (QD) will be lower because consumers are less willing to buy.
• This creates a situation where \(QS > QD\). A situation where quantity supplied exceeds quantity demanded is called a surplus or an excess supply.
Step 3: Evaluating Other Options:
• (B) Declines in resource costs: This is not a direct result of a price being above equilibrium. It could lead to an increase in supply, but not a surplus.
• (C) Shortage of goods: A shortage occurs when the price is below equilibrium, leading to \(QD > QS\).
• (D) Buyers' market: A buyer's market is characterized by high supply and low demand, often leading to lower prices. This is not a direct or immediate result of a price being above equilibrium.
Step 4: Final Answer:
When market prices are above equilibrium, it creates a surplus of goods. Therefore, option (A) is correct.
This question tests the basic principles of market equilibrium (demand and supply). The equilibrium price is the price at which the quantity demanded equals the quantity supplied.
Step 2: Analyzing Price Above Equilibrium:
When the market price is above the equilibrium price:
• At this higher price, quantity supplied (QS) will be higher because producers are willing to supply more.
• At the same higher price, quantity demanded (QD) will be lower because consumers are less willing to buy.
• This creates a situation where \(QS > QD\). A situation where quantity supplied exceeds quantity demanded is called a surplus or an excess supply.
Step 3: Evaluating Other Options:
• (B) Declines in resource costs: This is not a direct result of a price being above equilibrium. It could lead to an increase in supply, but not a surplus.
• (C) Shortage of goods: A shortage occurs when the price is below equilibrium, leading to \(QD > QS\).
• (D) Buyers' market: A buyer's market is characterized by high supply and low demand, often leading to lower prices. This is not a direct or immediate result of a price being above equilibrium.
Step 4: Final Answer:
When market prices are above equilibrium, it creates a surplus of goods. Therefore, option (A) is correct.
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