In a competitive market, a car dealer who does not have enough customers for a supply of new cars faces which of the following situations?

• A. Market equilibrium, with no pressure on prices
• B. Excess supply, leading to downward pressure on prices
• C. Excess demand, causing prices to rise
• D. Price controls imposed by the government

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of market equilibrium, where the quantity demanded equals the quantity supplied, resulting in stable prices with no pressure to change.
2. Step 2: Recognize that if a car dealer has more cars available than customers willing to buy them, this means the quantity supplied exceeds the quantity demanded.
3. Step 3: Identify this situation as 'excess supply' (also called a surplus), where sellers have more goods than buyers want at the current price.
4. Step 4: Analyze the market response to excess supply: sellers will typically lower prices to attract more buyers and reduce their surplus inventory.
5. Step 5: Conclude that excess supply leads to downward pressure on prices until the market moves back toward equilibrium.