Effects of an Autonomous Change on Equilibrium Demand in the Product Market
In case of ex...
Question
In case of excess demand, equilibrium price must rise.
A
True
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B
False
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Solution
The correct option is A True True. Excess demand generates pressure of demand on the existing supply. As an immediate impact, market price rises. It leads to extension of supply and contraction of demand. Finally, equilibrium is reached in the market where DX=SXDX=SX. This new equilibrium price happens to be higher than the initial equilibrium price.