Q.

'Law of demand' implies that when there is excess demand for a commodity, then

A. price of the commodity falls
B. price of the commodity remains same
C. price of the commodity rises
D. quantity demanded of the commodity falls
Answer» C. price of the commodity rises
Explanation: The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good. When there is excess demand of the commodity the price starts rising and it continues to rise till equilibrium price is reached.
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