Market Equilibrium: Shortages, Surpluses, Price Mechanism, Disequilibrium
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A market is in equilibrium when
A demand is greater than supply
B supply is greater than demand
C quantity demanded equals quantity supplied
D price is fixed by the government
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At a price above equilibrium, there is likely to be
A a shortage
B a surplus
C excess demand
D no supply
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At a price below equilibrium, there is likely to be
A a surplus
B excess supply
C a shortage
D no demand
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If there is excess demand in a free market, what is most likely to happen to price?
A price rises
B price falls
C price remains fixed
D price becomes zero
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If there is excess supply in a free market, what is most likely to happen to price?
A price rises
B price falls
C demand becomes zero
D supply becomes unlimited
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Which situation shows disequilibrium?
A quantity demanded equals quantity supplied
B the market clears
C there is a shortage or surplus
D consumers and producers agree at the same price
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The price mechanism mainly works through
A government orders only
B changes in prices sending signals and incentives
C firms producing without considering price
D consumers buying unlimited quantities
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A shortage occurs when
A quantity supplied exceeds quantity demanded
B quantity demanded exceeds quantity supplied
C market price is above equilibrium
D producers cannot sell all output
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A surplus occurs when
A quantity demanded exceeds quantity supplied
B quantity supplied exceeds quantity demanded
C price is below equilibrium
D consumers queue for goods
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Which statement is correct about equilibrium price?
A it is always the lowest possible price
B it is the price where the market clears
C it is always set by government
D it exists only when demand is zero
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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The table shows demand and supply.
Price $: 2, 4, 6, 8, 10
Quantity demanded: 100, 80, 60, 40, 20
Quantity supplied: 20, 40, 60, 80, 100
What is the equilibrium price?
A $2
B $4
C $6
D $8
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Using the table below, what happens at a price of $4?
Price $: 2, 4, 6, 8, 10
Quantity demanded: 100, 80, 60, 40, 20
Quantity supplied: 20, 40, 60, 80, 100
A shortage of 40 units
B surplus of 40 units
C shortage of 20 units
D surplus of 20 units
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Using the table below, what happens at a price of $8?
Price $: 2, 4, 6, 8, 10
Quantity demanded: 100, 80, 60, 40, 20
Quantity supplied: 20, 40, 60, 80, 100
A shortage of 40 units
B surplus of 40 units
C shortage of 20 units
D surplus of 20 units
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If demand increases and supply remains unchanged, what happens to equilibrium price and quantity?
A price falls, quantity falls
B price rises, quantity rises
C price rises, quantity falls
D price falls, quantity rises
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If demand decreases and supply remains unchanged, what happens to equilibrium price and quantity?
A price falls, quantity falls
B price rises, quantity rises
C price rises, quantity falls
D price falls, quantity rises
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If supply increases and demand remains unchanged, what happens to equilibrium price and quantity?
A price falls, quantity rises
B price rises, quantity falls
C price rises, quantity rises
D price falls, quantity falls
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If supply decreases and demand remains unchanged, what happens to equilibrium price and quantity?
A price falls, quantity rises
B price rises, quantity falls
C price rises, quantity rises
D price falls, quantity falls
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Demand and supply both increase. What is the definite effect?
A price rises
B price falls
C quantity rises
D quantity falls
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Demand and supply both decrease. What is the definite effect?
A price rises
B price falls
C quantity rises
D quantity falls
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Demand increases and supply decreases. What is the definite effect?
A price rises
B price falls
C quantity rises
D quantity falls
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Demand decreases and supply increases. What is the definite effect?
A price rises
B price falls
C quantity rises
D quantity falls
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Demand increases and supply increases by a larger amount. What is likely to happen?
A price rises and quantity rises
B price falls and quantity rises
C price rises and quantity falls
D price falls and quantity falls
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Demand decreases and supply decreases by a larger amount. What is likely to happen?
A price rises and quantity falls
B price falls and quantity rises
C price rises and quantity rises
D price falls and quantity falls
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A rise in consumer income increases demand for a normal good. What is the likely new equilibrium?
A higher price and higher quantity
B lower price and lower quantity
C higher price and lower quantity
D lower price and higher quantity
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A subsidy is given to producers. What is the likely new equilibrium?
A higher price and lower quantity
B lower price and higher quantity
C higher price and higher quantity
D lower price and lower quantity
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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An indirect tax is placed on producers. What is the likely new equilibrium?
A lower price and higher quantity
B higher price and lower quantity
C higher price and higher quantity
D lower price and lower quantity
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A successful advertising campaign increases demand. What happens in the market, other things equal?
A equilibrium price and quantity rise
B equilibrium price and quantity fall
C equilibrium price rises and quantity falls
D equilibrium price falls and quantity rises
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A new technology reduces production costs. What happens in the market, other things equal?
A equilibrium price rises and quantity falls
B equilibrium price falls and quantity rises
C equilibrium price and quantity fall
D equilibrium price and quantity rise
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Bad weather destroys part of a crop. What happens in the market for that crop?
A supply increases, price falls, quantity rises
B supply decreases, price rises, quantity falls
C demand decreases, price falls, quantity falls
D demand increases, price rises, quantity rises
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A maximum price set below equilibrium is likely to cause
A a surplus
B a shortage
C excess supply
D equilibrium
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A minimum price set above equilibrium is likely to cause
A a shortage
B a surplus
C excess demand
D equilibrium
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If a government maximum price is set above equilibrium, what is the likely effect?
A shortage must occur
B surplus must occur
C it has no immediate effect on equilibrium
D supply becomes zero
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If a government minimum price is set below equilibrium, what is the likely effect?
A surplus must occur
B shortage must occur
C it has no immediate effect on equilibrium
D demand becomes zero
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A market has quantity demanded of 500 and quantity supplied of 300 at the current price. What exists?
A surplus of 200
B shortage of 200
C equilibrium of 800
D surplus of 800
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A market has quantity demanded of 250 and quantity supplied of 400 at the current price. What exists?
A shortage of 150
B surplus of 150
C equilibrium of 650
D shortage of 650
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Which would eliminate a shortage in a free market?
A price rising
B price falling
C supply falling
D demand rising
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Which would eliminate a surplus in a free market?
A price rising
B price falling
C demand falling further
D supply rising further
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What is the rationing function of price?
A price distributes scarce goods among consumers willing and able to pay
B price guarantees equal income distribution
C price stops firms earning profit
D price removes scarcity completely
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What is the signalling function of price?
A prices tell producers and consumers about shortages and surpluses
B prices prevent any change in production
C prices make all goods free
D prices remove the need for demand and supply
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What is the incentive function of price?
A higher prices can encourage producers to supply more
B higher prices always make consumers buy more
C lower prices always make producers supply more
D prices stop resources moving between markets
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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The price of a product rises after a shortage. Which function of price is most clearly shown to producers?
A incentive function
B store of value
C medium of exchange
D occupational mobility
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If demand for bicycles rises, what signal does a higher price send to producers?
A produce fewer bicycles
B leave the market immediately
C allocate more resources to bicycle production
D reduce supply because consumers want more
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If the price of a good falls because of a surplus, what signal is sent to producers?
A reduce output or leave the market
B increase output immediately
C raise costs
D increase demand
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Which statement best describes the price mechanism in a market economy?
A resources are allocated by changing prices through demand and supply
B resources are allocated only by government plans
C prices remain fixed even when shortages occur
D consumers and producers ignore prices
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Which condition would make a market fail to clear?
A price freely adjusts to equilibrium
B price is prevented from changing
C demand equals supply
D there is no shortage or surplus
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The price of bread is below equilibrium. What is most likely to occur?
A unsold bread builds up
B consumers want more bread than producers supply
C producers supply more than consumers demand
D a surplus occurs
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The price of petrol is above equilibrium. What is most likely to occur?
A shortage
B excess demand
C unsold petrol or excess supply
D quantity demanded exceeds quantity supplied
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A market moves from disequilibrium to equilibrium. What must happen?
A price adjusts so quantity demanded equals quantity supplied
B supply becomes zero
C demand becomes zero
D government fixes price above equilibrium
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A fall in the price of a substitute increases demand for the original good’s substitute instead. What happens to demand for the original good?
A it shifts right
B it shifts left
C it causes extension in supply
D it causes surplus automatically
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Demand for a good falls while production costs also fall. What is the definite effect on equilibrium?
A price falls
B price rises
C quantity rises
D quantity falls
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: C
A wrong: demand greater than supply means shortage.
B wrong: supply greater than demand means surplus.
C correct: equilibrium occurs where quantity demanded equals quantity supplied.
D wrong: government-fixed price may cause disequilibrium.
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Answer: B
A wrong: shortage occurs below equilibrium.
B correct: above equilibrium, producers supply more than consumers demand, causing surplus.
C wrong: excess demand means shortage.
D wrong: supply does not become zero.
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Answer: C
A wrong: surplus occurs above equilibrium.
B wrong: excess supply means surplus.
C correct: below equilibrium, consumers demand more than producers supply, causing shortage.
D wrong: demand does not become zero.
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Answer: A
A correct: excess demand creates upward pressure on price.
B wrong: falling price would worsen the shortage.
C wrong: in a free market, price adjusts.
D wrong: price does not become zero.
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Answer: B
A wrong: rising price would worsen the surplus.
B correct: excess supply creates downward pressure on price.
C wrong: demand does not become zero.
D wrong: supply does not become unlimited.
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Answer: C
A wrong: equality means equilibrium.
B wrong: market clearing means equilibrium.
C correct: shortage or surplus means quantity demanded does not equal quantity supplied.
D wrong: same agreed price can be equilibrium.
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Answer: B
A wrong: government orders are command economy methods.
B correct: prices send signals and incentives to consumers and producers.
C wrong: firms do consider price in market economies.
D wrong: consumers cannot buy unlimited quantities.
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Answer: B
A wrong: this is surplus.
B correct: shortage occurs when quantity demanded is greater than quantity supplied.
C wrong: price above equilibrium creates surplus.
D wrong: unsold output means surplus.
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Answer: B
A wrong: this is shortage.
B correct: surplus occurs when quantity supplied is greater than quantity demanded.
C wrong: price below equilibrium causes shortage.
D wrong: queues usually happen with shortages.
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Answer: B
A wrong: equilibrium price is not always the lowest price.
B correct: the market clears where quantity demanded equals quantity supplied.
C wrong: equilibrium can be reached by demand and supply.
D wrong: equilibrium does not require zero demand.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: C
A wrong: at $2, demand 100 and supply 20, so shortage exists.
B wrong: at $4, demand 80 and supply 40, so shortage exists.
C correct: at $6, demand 60 equals supply 60.
D wrong: at $8, demand 40 and supply 80, so surplus exists.
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Answer: A
A correct: at $4, demand 80 and supply 40, so shortage = 40 units.
B wrong: supply is not greater than demand.
C wrong: shortage is 40, not 20.
D wrong: there is no surplus.
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Answer: B
A wrong: demand is not greater than supply.
B correct: at $8, supply 80 and demand 40, so surplus = 40 units.
C wrong: there is no shortage.
D wrong: surplus is 40, not 20.
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Answer: B
A wrong: price and quantity do not fall when demand rises.
B correct: higher demand creates excess demand, raising price and quantity.
C wrong: quantity rises, not falls.
D wrong: price rises, not falls.
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Answer: A
A correct: lower demand creates excess supply, reducing price and quantity.
B wrong: both do not rise.
C wrong: price does not rise.
D wrong: quantity does not rise.
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Answer: A
A correct: higher supply creates downward pressure on price and raises equilibrium quantity.
B wrong: price does not rise.
C wrong: price falls, not rises.
D wrong: quantity rises, not falls.
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Answer: B
A wrong: price does not fall when supply decreases.
B correct: lower supply creates shortage pressure, raising price and reducing quantity.
C wrong: quantity falls, not rises.
D wrong: price rises, not falls.
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Answer: C
A wrong: price is uncertain because both demand and supply rise.
B wrong: price is uncertain.
C correct: both changes increase equilibrium quantity.
D wrong: quantity rises, not falls.
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Answer: D
A wrong: price is uncertain because both curves shift left.
B wrong: price is uncertain.
C wrong: quantity falls, not rises.
D correct: both lower demand and lower supply reduce equilibrium quantity.
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Answer: A
A correct: higher demand raises price and lower supply also raises price.
B wrong: both changes push price up.
C wrong: quantity is uncertain.
D wrong: quantity is uncertain.
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Answer: B
A wrong: both changes push price down.
B correct: lower demand and higher supply both reduce price.
C wrong: quantity is uncertain.
D wrong: quantity is uncertain.
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Answer: B
A wrong: supply increases by more, so price is likely to fall, not rise.
B correct: both demand and supply increase quantity; larger supply increase lowers price.
C wrong: quantity rises, not falls.
D wrong: quantity rises, not falls.
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Answer: A
A correct: both demand and supply decrease quantity; larger supply decrease raises price.
B wrong: quantity falls, not rises.
C wrong: quantity falls.
D wrong: price rises if supply falls more than demand.
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Answer: A
A correct: demand for a normal good shifts right, raising equilibrium price and quantity.
B wrong: both do not fall.
C wrong: quantity rises, not falls.
D wrong: price rises, not falls.
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Answer: B
A wrong: subsidy increases supply, so price falls and quantity rises.
B correct: subsidy lowers costs, shifting supply right.
C wrong: price does not rise.
D wrong: quantity does not fall.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: B
A wrong: tax reduces supply, so price rises and quantity falls.
B correct: indirect tax raises costs, shifting supply left.
C wrong: quantity falls, not rises.
D wrong: price rises, not falls.
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Answer: A
A correct: advertising increases demand, raising equilibrium price and quantity.
B wrong: both do not fall.
C wrong: quantity rises, not falls.
D wrong: price rises, not falls.
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Answer: B
A wrong: new technology increases supply, so price falls and quantity rises.
B correct: lower production costs shift supply right.
C wrong: quantity rises, not falls.
D wrong: price falls, not rises.
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Answer: B
A wrong: bad weather reduces supply, not increases it.
B correct: lower supply raises price and reduces quantity traded.
C wrong: demand is not the first effect.
D wrong: demand does not increase because crops are destroyed.
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Answer: B
A wrong: surplus is caused by minimum price above equilibrium.
B correct: maximum price below equilibrium keeps price too low, causing excess demand.
C wrong: excess supply is surplus.
D wrong: the market is not in equilibrium.
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Answer: B
A wrong: shortage is caused by maximum price below equilibrium.
B correct: minimum price above equilibrium keeps price too high, causing excess supply.
C wrong: excess demand means shortage.
D wrong: the market is not in equilibrium.
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Answer: C
A wrong: a maximum price above equilibrium is non-binding.
B wrong: it does not force surplus.
C correct: if above equilibrium, the market price can still settle at equilibrium.
D wrong: supply does not become zero.
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Answer: C
A wrong: a minimum price below equilibrium is non-binding.
B wrong: it does not cause shortage.
C correct: equilibrium can still occur above the minimum price.
D wrong: demand does not become zero.
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Answer: B
A wrong: demand is greater than supply, so not surplus.
B correct: shortage = 500 – 300 = 200.
C wrong: adding demand and supply is not equilibrium.
D wrong: there is no surplus.
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Answer: B
A wrong: supply is greater than demand, so not shortage.
B correct: surplus = 400 – 250 = 150.
C wrong: adding demand and supply is not equilibrium.
D wrong: there is no shortage.
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Answer: A
A correct: higher price reduces quantity demanded and increases quantity supplied, removing shortage.
B wrong: lower price worsens shortage.
C wrong: lower supply worsens shortage.
D wrong: higher demand worsens shortage.
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Answer: B
A wrong: higher price worsens surplus.
B correct: lower price raises quantity demanded and reduces quantity supplied, removing surplus.
C wrong: lower demand worsens surplus.
D wrong: higher supply worsens surplus.
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Answer: A
A correct: price rations scarce goods to consumers willing and able to pay.
B wrong: prices do not guarantee equality.
C wrong: firms can still earn profit.
D wrong: scarcity remains.
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Answer: A
A correct: prices signal shortages and surpluses to economic agents.
B wrong: prices encourage changes in production.
C wrong: prices do not make all goods free.
D wrong: demand and supply still operate.
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Answer: A
A correct: higher prices create profit incentive for producers to supply more.
B wrong: higher prices usually reduce quantity demanded.
C wrong: lower prices usually reduce quantity supplied.
D wrong: price changes help resources move between markets.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.
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Answer: A
A correct: higher price gives producers an incentive to increase output.
B wrong: store of value is a function of money.
C wrong: medium of exchange is a function of money.
D wrong: occupational mobility is labour movement between jobs.
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Answer: C
A wrong: higher price signals stronger demand, not lower output.
B wrong: producers are encouraged to enter or expand, not leave.
C correct: higher price signals profit opportunity and encourages more resources into bicycle production.
D wrong: producers do not reduce supply when consumers want more at higher prices.
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Answer: A
A correct: falling price from surplus signals producers to reduce output or move resources elsewhere.
B wrong: increasing output worsens surplus.
C wrong: raising costs is not the signal.
D wrong: producers cannot directly increase demand through price signal alone.
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Answer: A
A correct: price mechanism allocates resources through price changes caused by demand and supply.
B wrong: government planning is command allocation.
C wrong: prices change when shortages or surpluses occur.
D wrong: consumers and producers respond to prices.
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Answer: B
A wrong: free price adjustment clears the market.
B correct: if price cannot change, shortages or surpluses may persist.
C wrong: equality of demand and supply means market clears.
D wrong: no shortage/surplus means equilibrium.
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Answer: B
A wrong: unsold goods are surplus, caused by price above equilibrium.
B correct: below-equilibrium price causes quantity demanded to exceed quantity supplied.
C wrong: producers do not supply more than consumers demand below equilibrium.
D wrong: surplus occurs above equilibrium.
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Answer: C
A wrong: shortage occurs below equilibrium.
B wrong: excess demand occurs below equilibrium.
C correct: above-equilibrium price causes excess supply and unsold stock.
D wrong: quantity supplied exceeds quantity demanded.
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Answer: A
A correct: equilibrium is reached when price adjusts until quantity demanded equals quantity supplied.
B wrong: supply does not become zero.
C wrong: demand does not become zero.
D wrong: a fixed price above equilibrium creates surplus.
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Answer: B
A wrong: if the substitute becomes cheaper, consumers switch away from the original good.
B correct: demand for the original good decreases and shifts left.
C wrong: extension in supply is caused by a rise in own price.
D wrong: surplus is not automatic without comparing price, demand and supply.
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Answer: A
A correct: lower demand reduces price and lower production costs increase supply, which also reduces price.
B wrong: both changes push price down.
C wrong: quantity is uncertain because demand falls but supply rises.
D wrong: quantity is uncertain.
Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.