Multiple Choice
In the context of market equilibrium, what type of real estate market is most likely to occur when both supply and demand are low?
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3. The Market Forces of Supply and Demand
Market Equilibrium
Multiple Choice
Which one of the following would NOT occur if the market price was above the market-clearing price?
A
Sellers may lower their prices to increase sales
B
A surplus of the good
C
A shortage of the good
D
Quantity supplied exceeds quantity demanded
Verified step by step guidance1
Step 1: Understand the concept of market-clearing price, which is the price at which quantity demanded equals quantity supplied, resulting in market equilibrium.
Step 2: Recognize that if the market price is above the market-clearing price, the quantity supplied will exceed the quantity demanded, creating a surplus of the good.
Step 3: Analyze the behavior of sellers in response to a surplus; sellers may lower their prices to increase sales and reduce excess inventory.
Step 4: Identify that a shortage of the good occurs when the price is below the market-clearing price, causing quantity demanded to exceed quantity supplied, which is the opposite of the given scenario.
Step 5: Conclude that the statement 'A shortage of the good' would NOT occur if the market price was above the market-clearing price, because a surplus, not a shortage, results from prices above equilibrium.
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