If there is excess demand in a perfectly competitive market, does the government need to intervene to restore the equilibrium price and quantity?
What will be an ideal response?
No, in a perfectly competitive market, no government intervention is required to restore equilibrium as equilibrium is automatically restored. A situation of excess demand occurs when the market price is below the equilibrium price. Because quantity demanded exceeds quantity supplied in the market, some consumers will be willing to pay higher prices to buy goods. This will act as an incentive for suppliers to supply more, eliminating the shortage in the market.
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People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. This would make the price for peanut butter_____________ and the quantity demanded for peanut butter ____________
a. Uncertain; decreases b. Decreases; increases c. Decreases; uncertain d. Increases; uncertain
When, in our analysis of the gains and losses from international trade, we assume that a particular country is small, we are
a. assuming the domestic price before trade will continue to prevail once that country is opened up to trade with other countries. b. assuming there is no demand for that country's domestically-produced goods by other countries. c. assuming international trade can benefit producers, but not consumers, in that country. d. making an assumption that is not necessary to analyze the gains and losses from international trade.