Multiple Choice
Refer to Figure 13-3. Which of the points in the graph represent possible long-run equilibria in a perfectly competitive market?
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3. The Market Forces of Supply and Demand
Market Equilibrium
Multiple Choice
At what price will a stock reach 'equilibrium' in the market, meaning it is perceived as fairly priced today?
A
At the price where demand exceeds supply
B
At the price set by the government
C
At the price where quantity demanded equals quantity supplied
D
At the price where supply exceeds demand
Verified step by step guidance1
Understand the concept of market equilibrium: it occurs at the price where the quantity demanded by buyers equals the quantity supplied by sellers.
Recall the law of demand, which states that as price decreases, quantity demanded increases, and the law of supply, which states that as price increases, quantity supplied increases.
Set up the equilibrium condition mathematically as \(\text{Quantity Demanded} = \text{Quantity Supplied}\).
Recognize that at this equilibrium price, there is no shortage or surplus in the market, meaning the market clears efficiently.
Conclude that the stock reaches equilibrium at the price where quantity demanded equals quantity supplied, not where demand exceeds supply, supply exceeds demand, or where the government sets the price.
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