When Prices in a Market Are Fixed Either Above or Below

question 144

Multiple Choice

When prices in a market are fixed either above or below the equilibrium price, what is the result?

• A) When price is set above, there is a surplus; and when price is set below, there is a shortage.
• B) When price is set above, there is a shortage; and when price is set below, there is a surplus.
• C) When price is set above, there is a surplus; and when price is set below, there is a surplus.
• D) When price is set above, there is a shortage; and when price is set below, there is a shortage.

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Definitions:

Average Cost

A calculation of the total cost of goods available for sale divided by the total units available for sale, used to compute cost of goods sold in certain inventory valuation methods.

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold in a company.

Periodic Inventory System

An inventory system in which the inventory count and cost of goods sold calculation are performed at specific intervals, typically at the end of an accounting period.

FIFO

FIFO, which stands for "first in, first out," is an inventory valuation method where the first items placed in inventory are the first ones sold. This approach aims to mirror the actual flow of goods.