Question
In: Economics
Which of the following results if at a particular price level, the aggregate quantity supplied exceeds the aggregate quantity demanded?
Which of the following results if at a particular price level, the aggregate quantity supplied exceeds the aggregate quantity demanded?
A surplus causes the price level to rise.
Aggregate supply shifts to the left
A surplus causes the price level to fall.
Aggregate demand shifts to the right.
Solutions
Expert Solution
If aggregate supply exceeds aggregate demand then a surplus cause price level to fall.
This is because supply is more than the demand so inventories will be piled up. As a result price will fall in order to sell more and vacant the piling of inventories. Price fall will lead to rise in demand and therefore demand and supply will be in equilibrium. This can also be shown with the help of a diagram:
AB is excess supply which will lead to fall in price from P1 to P.
Rahul Sunny answered 1 year agoRelated Solutions
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