When there is an excess demand for a good, which of the following is most likely to occur in a competitive market?

• A. Producers will decrease the quantity supplied.
• B. The price of the good will tend to rise.
• C. Consumers will purchase more of the good at the current price.
• D. The market will experience a surplus.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of excess demand. Excess demand occurs when the quantity demanded by consumers exceeds the quantity supplied by producers at the current price.
2. Step 2: Recall the law of supply and demand, which states that when there is excess demand, the price tends to adjust to restore market equilibrium.
3. Step 3: Analyze the effects of excess demand on price. Since more consumers want the good than producers are willing to supply at the current price, producers have an incentive to raise prices.
4. Step 4: Recognize that as the price rises, the quantity demanded will typically decrease (due to the law of demand), and the quantity supplied will increase (due to the law of supply), moving the market back toward equilibrium.
5. Step 5: Conclude that the most likely outcome in a competitive market with excess demand is that the price of the good will tend to rise, rather than producers decreasing supply, consumers buying more at the same price, or a surplus occurring.