The equilibrium price of rain jackets is $58. Any price above that would result in:
Select one:
a. an increase in supply.
b. a shortage.
c. a surplus.
d. equilibrium.
The correct answer and explanation is:
The correct answer is c. a surplus.
Explanation:
In a market, the equilibrium price is the price at which the quantity supplied equals the quantity demanded. When the price of a product is set above the equilibrium price, the quantity supplied by producers will exceed the quantity demanded by consumers. This results in a surplus.
In this case, if the price of rain jackets is set at a level higher than $58 (the equilibrium price), producers will want to supply more jackets because they can earn a higher profit at the higher price. However, consumers will be less willing to purchase the jackets at the higher price, leading to fewer people buying the product.
As a result, the supply of rain jackets will exceed the demand, causing a surplus in the market. This surplus represents an excess quantity of jackets that producers are unable to sell at the elevated price. In response, producers may reduce the price to clear the surplus and bring the market back to equilibrium.
If the price remains too high, the surplus will persist, causing producers to either cut prices or adjust production to avoid holding too much unsold inventory. Ultimately, the market mechanism of price adjustments works to return the market to equilibrium, where the quantity supplied equals the quantity demanded at the equilibrium price of $58.