In a competitive market, what typically happens when quantity supplied exceeds quantity demanded at the current price?

• A. Demand shifts right immediately, eliminating the excess supply without any change in price.
• B. A shortage occurs, putting upward pressure on price until the market moves toward equilibrium.
• C. Price remains unchanged because excess supply is automatically purchased by the government.
• D. A surplus occurs, putting downward pressure on price until the market moves toward equilibrium.

Answer: (D)

Verified step by step guidance

1. Understand the basic concept of market equilibrium, where quantity demanded equals quantity supplied at a certain price.
2. Recognize that when quantity supplied exceeds quantity demanded at the current price, there is an excess supply, also known as a surplus.
3. Analyze the market response to a surplus: sellers have more goods than buyers want to purchase at the current price, which creates downward pressure on the price.
4. Explain that as the price decreases, quantity demanded typically increases and quantity supplied decreases, moving the market toward equilibrium.
5. Conclude that the market self-corrects through price adjustments rather than immediate shifts in demand or government intervention in a perfectly competitive market.