Question

[12] The expected reaction to a surplus is:
A) a reduction in price.
B) an increase in quantity supplied.
C) a reduction in quantity demanded.
D) all of the above.

[13] Equilibrium price and equilibrium quantity are the price and quantity:
A) where demand equals supply in a market.
B) toward which a free market automatically moves.
C) both of the above.
D) none of the above.

[14] A shortage will develop when a product's price is:
A) equal to the equilibrium price.
B) less than the equilibrium price.
C) greater than the equilibrium price.
D) none of the above.

[15] When a product's price is greater than the equilibrium price we should expect:
A) a surplus.
B) a shortage.
C) market supply to equal market demand.
D) none of the above.

Answer 1

12) A. A reduction in price

As the market has to be in equilibrium, when the quantity supplied is more than the quantity demanded a surplus arises. Eventually the market moves back to the equilibrium price. Price is reduced to the equilibrium price.

13) C. Both the above

Equilibrium price and equilibrium quantity are where the demand equals the supply and the market eventually moves back to this point.

14) B.

A shortage will occur when the products price is less than the equilibrium price. This is because the quantity demanded will be greater than the quantity supplied resulting in a shortage of the commodity.

15) A.

When the price of the product is greater than the equilibrium price we should expect a surplus because the quantity supplied is greater than the quantity demanded leading to a greater price. It is because at a higher price supply is more and demand less.