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.
Mark this and return

Answer 1

It needs to be decreased.