If the market price is above the equilibrium price, what typically occurs in the market?

If the market price is above the equilibrium price, what typically occurs in the market?

• A. Shortage
• B. Surplus
• C. Equilibrium persists
• D. Prices fall

Answer: (B)

When the market price is above the equilibrium, producers are willing to supply more than buyers are willing to buy. That creates excess supply, a surplus. Because there’s more goods than buyers at that price, sellers tend to lower prices to move the market back toward equilibrium, where supply matches demand. Shortages occur when price is below equilibrium, equilibrium doesn’t persist without price adjustment, and while falling prices help eliminate the surplus, the initial condition described is the surplus itself.

When the market price is above the equilibrium, producers are willing to supply more than buyers are willing to buy. That creates excess supply, a surplus. Because there’s more goods than buyers at that price, sellers tend to lower prices to move the market back toward equilibrium, where supply matches demand. Shortages occur when price is below equilibrium, equilibrium doesn’t persist without price adjustment, and while falling prices help eliminate the surplus, the initial condition described is the surplus itself.