Multiple Choice
Which of the following correctly identifies the two main types of imperfectly competitive markets?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Suppose the graph depicts a hypothetical market for concert tickets at a local college venue. If the market is perfectly competitive and the price is set above the equilibrium price, what is most likely to occur?
A
A surplus of concert tickets will result, as quantity supplied exceeds quantity demanded.
B
Producers will lower the price to create a shortage.
C
The market will clear, with quantity supplied equal to quantity demanded.
D
A shortage of concert tickets will result, as quantity demanded exceeds quantity supplied.
Verified step by step guidance1
Step 1: Understand the concept of market equilibrium, which occurs where the quantity demanded equals the quantity supplied. This is the price at which the market clears, meaning there is neither a surplus nor a shortage.
Step 2: Recognize that if the price is set above the equilibrium price, the quantity supplied will be greater than the quantity demanded because producers are willing to supply more at higher prices, but consumers will buy less.
Step 3: Identify that this imbalance creates a surplus, meaning there are more concert tickets available than consumers want to buy at that price.
Step 4: Understand that in a perfectly competitive market, producers will respond to this surplus by lowering the price to encourage more consumption and reduce the excess supply.
Step 5: Realize that this price adjustment will continue until the market reaches equilibrium again, where quantity demanded equals quantity supplied and the surplus is eliminated.
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