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When the prevailing market price is set above the equilibrium price, the immediate outcome in the market is:
AA shortage, as quantity demanded exceeds quantity supplied
BExact balance between quantity demanded and supplied
CA permanent rise in the equilibrium quantity sold
DA surplus, as quantity supplied exceeds quantity demanded
Answer & Solution
Correct answer: D. A surplus, as quantity supplied exceeds quantity demanded
1. Above equilibrium, the higher price encourages sellers and discourages buyers.
2. Quantity supplied therefore exceeds quantity demanded, leaving unsold stock.
3. This excess supply is a surplus, so option D is correct.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit II "Determination of Prices", p.2_
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