When we say that a price in a competitive market is too high to clear the market we usually mean that (given upward-sloping supply curves)

Marketing Jan 11, 2021

When we say that a price in a competitive market is too high to clear the market we usually mean that (given upward-sloping supply curves).

a. no producer can cover the costs of production at that price.

b. quantity supplied exceeds quantity demanded at that price.

c. producers are leaving the industry.

d. consumers are willing to buy all the units produced at that price.

Expert Solution

The answer is b).

At the equilibrium price, quantity demanded is exactly equal to quantity supplied. Since quantity demanded decreases with price while quantity supplied increases with price, when price is too high (relative to the equilibrium price), the quantity demanded must be lower than the quantity supplied.

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