The reasons for the fall in prices.
Explanation of Solution
If the market
The following graph represents the market price and surplus quantity in the market:
Here, the market price (P2) is higher than the equilibrium price (P1), and the quantity supplied is more than the quantity demanded. It reflects the surplus of goods in the market.
At this higher price, consumers demand less while suppliers supply more. To absorb the surplus quantity and bring the economy back to the equilibrium level, the market price will fall and reach the equilibrium point.
So, the price will fall if it is above the equilibrium price.
Option “d” is correct.
Chapter 7 Solutions
Krugman's Economics For The Ap® Course
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