What Happens If Price Falls Below the Market Clearing Price

question 16

Multiple Choice

What happens if price falls below the market clearing price?

• A) Demand shifts out.
• B) Supply shifts in.
• C) Quantity demanded decreases, quantity supplied increases, and price falls.
• D) Quantity demanded increases, quantity supplied decreases, and price rises.

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Definitions:

Payback Period

The length of time required to recover the initial outlay on an investment based on its expected cash flows.

Annual Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business during a given fiscal year.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project, calculated as the difference between the present value of cash inflows and outflows over a period of time.

Yearly Cash Inflows

The total amount of money received by a company over a year, from various sources including sales, investments, and financing.