Question
The graph shows excess supply.
A graph titled Excess supply has quantity on the x-axis and price on the y-axis. A line with positive slope represents supply and a line with negative slope represents demand. The lines intersect at the point of equilibrium (p star, Q star). A point on the demand line is (P 2, quantity demanded) and a point on the supply line is (P 2, quantity supplied). Both points are higher than the point of equilibrium. Excess supply is indicated between the 2 points.
Which needs to happen to the price indicated by p2 on the graph in order to achieve equilibrium?
It needs to be increased.
It needs to be decreased.
It needs to reach the price ceiling.
It needs to remain unchanged.
A graph titled Excess supply has quantity on the x-axis and price on the y-axis. A line with positive slope represents supply and a line with negative slope represents demand. The lines intersect at the point of equilibrium (p star, Q star). A point on the demand line is (P 2, quantity demanded) and a point on the supply line is (P 2, quantity supplied). Both points are higher than the point of equilibrium. Excess supply is indicated between the 2 points.
Which needs to happen to the price indicated by p2 on the graph in order to achieve equilibrium?
It needs to be increased.
It needs to be decreased.
It needs to reach the price ceiling.
It needs to remain unchanged.
Answers
GPT-4o mini
In the scenario described, you have a situation of excess supply at the price \( P_2 \). This means that the quantity supplied exceeds the quantity demanded at that price. To achieve equilibrium, where the quantity supplied equals the quantity demanded, the price must be adjusted.
Since you have excess supply at \( P_2 \), the price needs to decrease in order to encourage more demand and reduce supply until the market reaches the equilibrium point (where demand equals supply).
Therefore, the correct answer is:
**It needs to be decreased.**
Since you have excess supply at \( P_2 \), the price needs to decrease in order to encourage more demand and reduce supply until the market reaches the equilibrium point (where demand equals supply).
Therefore, the correct answer is:
**It needs to be decreased.**