If the price system is allowed to function without interference and a surplus occurs, quantity demanded will fall and quantity supplied will rise as the price falls to its equilibrium level.

Question

BlackTom AI · Accepted Answer

When the price system is free to operate, a surplus means the market price is above equilibrium. 
Option True: This would imply that as price falls toward equilibrium, quantity demanded decreases and quantity supplied increases. That is inconsistent with the basic law of demand and supply, where a lower price typically increases quantity demanded and reduces quantity supplied. Therefore this option is incorrect.
Option False: As the price falls from a surplus level toward the equilibrium price, consumers generally buy more (quantity demanded rises) and producers generally sell less (quantity supplied falls). The statement asserts the opposite for each side, so it does not describe how the market moves toward equilibrium. Since the mechanism of a surplus entails pressure on price to decline, the described outcome in the statement is inaccurate. Therefore this option is correct.

If the price system is allowed to function without interference and a surplus occurs, quantity demanded will fall and quantity supplied will rise as the price falls to its equilibrium level.True/False

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