If the Price of a Good Increases and Is Above

question 24

Multiple Choice

If the price of a good increases and is above the equilibrium price, then:

• A) suppliers' inventories will build up, they will reduce output, and lower prices.
• B) demand will exceed supply and there will be a shortage in the market.
• C) the demand curve will shift to the left until equilibrium is established at the new higher prices.
• D) the supply curve will shift to the right until equilibrium is established at the new higher price.
• E) consumers will bid down the good's price, but there will be no reduction in output.

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Definitions:

Consumer Surplus

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

Price Floor

A government-imposed minimum price charged on goods and services, typically above equilibrium price to prevent market prices from dropping too low.

Consumer Surplus

The difference in the amount consumers would ideally pay for a service or good versus what they really spend.

Producer Surplus

The imbalance between the desired compensation by producers for a good or service and the real income they secure.