Question

After watching the Seinfeld clip, answer the following multiple choice question:

Which of the following is NOT a distinctive feature of market equilibrium?

1. it is the only price-quantity combination that is acceptable to buyers and sellers alike.

2. Only the equilibrium price clears the market.

3. At higher prices, sellers supply more than buyers are willing to purchase.

4. The equilibrium price is determined by what buyers are willing and able to purchase.

5. At lower prices, the amount demanded exceeds the quantity supplied.

Answer 1

Solution:

Market equilibrium has the feature of clearing the market. When market clears, it simply means that the quantity demanded exactly equals the quantity supplied. So, at this price there will be neither excess supply nor excess demand.

Since, quantity supplied and price are positively related while quantity demanded and price are negatively related, at any price above the equilibrium one, we expect that sellers will be willing to sell more. But due to good becoming more expensive, buyers will be willing to buy less of it. Thus, at higher prices, there is excess supply.

In the same way, at any price below the equilibrium one, we expect that sellers will be willing to sell less, as they receive a lower price for every unit now. Also due to good becoming less expensive, buyers will be willing to buy more of it. Thus, at lower prices, there is excess demand.

Among all the options provided above, the feature that equilibrium price is determined by what buyers are willing and able to purchase is not a distinctive one. So, the correct option is (D).