Question

What happens when the market price is set below the equilibrium price?

Options

• There is an excess supply, andthe  price tends to fall

• There is excess demand and price tends to rise

• There is neither excess demand nor excess supply

• Both demand and supply become zero

Answer 1

There is excess demand and price tends to rise

Explanation:

At a price below equilibrium, quantity demanded exceeds quantity supplied (excess demand), causing buyers to compete and pushing the price upward towards equilibrium.