When prices drop below the point where supply and demand meet (the equilibrium price), it results in:

• A. a shortage
• B. a surplus
• C. perfect competition
• D. market equilibrium

Answer: (A)

Verified step by step guidance

1. Understand the concept of equilibrium price: it is the price at which the quantity of goods demanded by consumers equals the quantity supplied by producers.
2. Recognize that when the price is set below the equilibrium price, the quantity demanded increases because consumers want to buy more at the lower price.
3. At the same time, producers are less willing to supply the good at this lower price, so the quantity supplied decreases.
4. Compare the quantity demanded and quantity supplied at this lower price: since demand exceeds supply, there is a shortage in the market.
5. Conclude that a price below equilibrium leads to a shortage, not a surplus, perfect competition, or market equilibrium.