If at a price, market supply is greater than market demand, we say that there is _______ in the market at that price.
- AOption (a)
Excess Supply
- BOption (b)
Marginal Revenue
- COption (c)
Excess Demand
- DOption (d)
Equilibrium
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Correct answer
Excess Supply
Why this answer is correct
The correct answer is Excess Supply
Key Points
- Excess Supply
- When there is a difference between the price that consumer pay in the market and the value that consumers place on the product, then the concept of consumer surplus becomes a useful one to look at.
- Consumer surplus is a measure of the welfare that people gain from consuming goods and services
- Consumer surplus is defined as the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they do pay (i.e. the market price).
Additional Information
- Excess Demand
- When consumer demand outpaces the available supply of many types of consumer goods, demand-pull inflation happens, forcing an overall increase in the cost of living.
- When demand surpasses supply, higher prices are the result. This is demand-pull inflation.
- A low unemployment rate is unquestionably better in general, but it can result in inflation because more people have more disposable income.
- Equilibrium
- Equilibrium means a state of no change. Evidently, at the equilibrium price, both buyers and sellers are in a state of no change. Technically, at this price, the quantity demanded by the buyers is equal to the quantity supplied by the sellers. Both market forces of demand and supply operate in harmony at the equilibrium price.
- Marginal Revenue
- Marginal revenue refers to the revenue generated for each additional unit sold and has an attached marginal cost (MC).
- Marginal cost can remain constant over a particular output level.
- Economic theory states that perfectly competitive firms will continue to produce output until marginal revenue equals marginal cost.
- Marginal revenue formula: Marginal Revenue = Change in Revenue / Change in Quantity























