Refer to the below diagram of the market for corn. If the price in this market is more than $3 per bushel, then there will be A. a surplus in the market. B. equilibrium in the market. C. a shortage in the market. D. no buyers in the market.
The correct answer and explanation is:
If the price in the corn market is more than $3 per bushel, then there will be A. a surplus in the market.
Explanation:
In a market, the price at which goods are exchanged is determined by the interaction of supply and demand. The equilibrium price is the price at which the quantity supplied by producers equals the quantity demanded by consumers. If the price is set higher than the equilibrium price, producers are willing to supply more of the good than consumers are willing to buy, creating a surplus. In the case of the corn market, if the price is more than $3 per bushel, producers will produce more corn because the higher price increases their incentive to supply. However, consumers will be less willing to purchase corn at this higher price, as their demand decreases. This imbalance results in a surplus of corn in the market, where the quantity supplied exceeds the quantity demanded.
On the other hand, if the price were exactly at the equilibrium price, there would be no surplus or shortage, and the market would be in balance. If the price is below the equilibrium price, there would be a shortage, as the quantity demanded would exceed the quantity supplied. However, with a price higher than $3, the surplus situation arises because producers are eager to sell more at the higher price, while fewer consumers are willing to buy.
The key concept here is that the market tends to adjust to the equilibrium price over time. If there is a surplus, producers may lower their prices to stimulate demand, moving the price toward equilibrium.