Question

Excess supply occurs when the actual price in some market is ________ the equilibrium price.

Group of answer choices

equal to

below

above

Answer 1

The correct answer is above

Explanation :- When the actual price is above the equilibrium price, more sellers are willing to sell the goods or services because the price they get from sale is above the market equilibrium price. Sellers can earn more profit if the price remains above the equilibrium price. However the demand remains low when the price is above equilibrium because consumers are not willing to purchase at high prices. This will cause a mismatch between demand and supply as more goods are available for sale but less number of consumers who are willing to purchase.