If a good can be consumed by many people at once and businesses would find it...

If a good can be consumed by many people at once and businesses would find it difficult to set a price, what will happen in the market?
1. At the equilibrium price, there will be a shortage as the quantity demanded will be larger than even the relatively large quantity supplied.
2. At the equilibrium price, there will be a surplus as the quantity supplied will be larger than even the relatively large quantity demanded.
3. Markets will not produce the good.
4. Markets will produce too much of the good too quickly.

Expert Solution

The correct option is A which states that at the equilibrium price, there will be a shortage as the quantity demanded will be larger than even the relatively large quantity supplied.

Market equilibrium takes place when the demand in the market is equal to the supply. Through this, the equilibrium price and the equilibrium quantity are determined.

In this situation, good has a high demand and is getting consumed rapidly. Because of that, the businesses are not able to set an appropriate price for it. And as it is getting consumed quickly, the supply of the good is also being depleted at a high pace. There is already a high supply of the good but the demand is even higher, which can cause the shortage at the equilibrium price set by the market forces.

Due to the changing nature of the good supply and its demand, the companies find it difficult to set the price. If the businesses set a low price, the value of the good can decrease. If they set a high price, the demand for a good can decrease.

However, there are many other factors that have to be evaluated before a price can be set. Such as competitors' policies, economic conditions, type of goods, consumer's taste and preference, etc.

As for the other options,

Looking at the question, it doesn't seem to be the situation of a surplus. Option B is contrasting with option A.

Option C is unlikely to happen unless the market failure occurs.

Option D market cannot produce too much good. There are other extreme problems that can take place if too much good is produced too quickly.

The last two options point toward the imbalance in the market that is not a favorable condition although the market is still not perfect.

Rahul Sunny answered 6 months ago

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