What Is Likely to Happen If a Producer Incorrectly Sets

question 6

Multiple Choice

What is likely to happen if a producer incorrectly sets the price of its product too low?

• A) A shortage (excess demand) will result, and consumers will bid the price down to equilibrium.
• B) A surplus (excess supply) will result, and the additional goods in inventory will prompt the producer to raise the price.
• C) A shortage (excess demand) will result, and consumers will bid the price up to equilibrium.
• D) A surplus (excess supply) will result, and the additional goods in inventory will prompt the producer to restrict output until sales increase.

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Definitions:

Equilibrium

A state in a market where the quantity demanded equals the quantity supplied, resulting in a stable market price.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.

Excess Quantity

A situation where the supply of a product exceeds the demand for it.

Consumer Surplus

is the difference between the total amount that consumers are willing to pay for a good or service and the total amount that they actually pay.