Which of these situations best illustrates market equilibrium?

• A. There is a persistent shortage of the good in the market.
• B. The government sets a price above the equilibrium price, causing a surplus.
• C. Producers are unable to sell all of their goods at the current price.
• D. The quantity demanded equals the quantity supplied at the prevailing price.

Answer: (D)

Verified step by step guidance

1. Understand the concept of market equilibrium: it occurs when the quantity demanded by consumers equals the quantity supplied by producers at a certain price.
2. Identify that a shortage happens when the quantity demanded exceeds the quantity supplied, meaning the market is not in equilibrium.
3. Recognize that a government-imposed price above the equilibrium price leads to a surplus, where quantity supplied exceeds quantity demanded, so the market is not in equilibrium.
4. Note that producers being unable to sell all their goods indicates excess supply, which also means the market is not in equilibrium.
5. Conclude that the situation where quantity demanded equals quantity supplied at the prevailing price best illustrates market equilibrium.