Question

Which of the following is true about a market at equilibrium price?

a.The market does not clear.

b.There tend to be shortages because the price is so low.

c.At the prevailing price, there is no market basis for the price to change.

d.Demand is low because the price is so high.

Answer 1

Answer) Market at equilibrium price implies that demand is eual to supply and equilbrium quantity along with equilibrium price is achieved,now we will evaluate all 4 options.

1. The market does not clear-This is false as market does clear as demand is equal to supply and there is no shortage or surplus.
2. There tend to be shortages because the price is so low,this statement is false as at equilibrium price,price cannot be low or hight than equilibrium price and therfore there would be no surplus or shortage.
3. At the prevailing price,there is no market basis for the price to change-This statement is true as at current price,market is inequilibrium and demand is met by supply completely,so no market basis is there change in price.
4. Demand is low because price is so high-As explained in statement 2,this statement is also false as at equilibrium price,price cannot be high or low than equilibrium otherwise we would not have called it equilibrium price,so no surplus or shortage will be there.

Based on above explanations,correct answer is option c) At the prevailing price,there is no market basis for the price to change

Answer is complete.Thank you!