In a market economy, a high price will usually cause:
A. An increase in supply
B. A decrease in demand
C. A surplus of goods
D. All of the above
Answer (3)
The correct answer is: "if prices rise over the equilibrium price there will be an excess of supply"
**The equilibrum price **represents the point at which the desires of producers and consumer meet in a market. Therefore, the product is commercialized at the market price where the quantity supplied equals the quantity demanded.
The law of demand states that there is an inverse relationship between price and quantity demanded (ceteris paribus, hence given that the rest remains equal), while the law of supply states that there is a direct relationship between price and quantity supplied (ceteris paribus.
Therefore, a high price is located above the equilibrium price. The amount demanded will decrease, while the amount supplied will increase, generating an excess of supply
In a market economy, a high price will usually lead to a decrease in the demand for that product because consumers find less value in purchasing the good at a higher cost. Market adjustments such as surpluses and shortages might occur more frequently under conditions of high and variable inflation. ;
In a market economy, a high price usually causes an increase in supply, a decrease in demand, and a surplus of goods. Therefore, the correct answer is D. All of the above.
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