Question

If the market price is lower than the market clearing price

Select one:

a. Some sellers will ask for a lower price in order to out-compete other sellers and win more buyers.

b. Some buyers will bid a higher price in order to outbid other buyers and thus get the good.

c. Quantity supplied will decline as the price rises toward the market clearing price.

d. Quantity demanded will increase as the price rises toward the market clearing price.

Answer 1

When the market price is lower than the market clearing price then the quantity supplied will decline. On the other hand quantity demanded rises which leads to an excess demand conndition. This again leads to a rise in price till the market price equals the market clearing price.

So the answer is c: Quantity supplied will decline as the price rises toward the market clearing price. However in this case both C and D are correct. But since only one has to be selected, it should be C.