If the average market price for an item is higher than the equilibrium price, which of the following is likely to take place?
A.
Supply and demand will be equal.
B.
More product will be produced than consumers want to purchase.
C.
The price will increase drastically.
D.
Consumers will buy all of the product supply and not be satisfied.
B.
More product will be produced than consumers want to purchase.
If the average market price for an item is higher than the equilibrium price, then it suggests that the current market price is above the point at which supply and demand are in balance. In this case, the correct answer would be:
B. More product will be produced than consumers want to purchase.
When the market price is above the equilibrium price, suppliers are motivated to produce more of the product, anticipating higher profits. However, since consumers are not willing to purchase as much of the product at the higher price, there will be excess supply or a surplus in the market.
To determine the likely outcome if the average market price is higher than the equilibrium price, we need to understand the concept of equilibrium in economics.
Equilibrium price is the price at which the demand for a product matches the supply of that product. It is the point where buyers are willing to pay a certain price, and sellers are willing to provide the product at that price.
If the average market price is higher than the equilibrium price, it means that the market price is above the price level where the quantity demanded equals the quantity supplied. In this situation, we can expect the following outcome:
B. More product will be produced than consumers want to purchase.
When the market price is higher than the equilibrium price, sellers have an incentive to increase their production to take advantage of the higher prices. As a result, more products will be produced than consumers want to purchase because the higher price discourages some consumers from buying.
Option A, which states that supply and demand will be equal, is incorrect. When the market price is above the equilibrium price, there is an excess supply because the quantity supplied exceeds the quantity demanded.
Option C, which suggests that the price will increase drastically, is not necessarily accurate. While the market price is indeed higher than the equilibrium price, it does not necessarily mean that the price will increase drastically. It simply means that the prevailing price is above the equilibrium level.
Option D, stating that consumers will buy all of the product supply and not be satisfied, is not likely to occur. When the market price is higher than the equilibrium price, there is an excess supply, meaning that there is more product available than consumers are willing to buy.
Therefore, the correct answer is B. More product will be produced than consumers want to purchase.