Future Business Leader Achievments (FBLA) Economics Practice Exam

What happens if the price of oranges is set below the equilibrium price?

1. The supply will decrease

2. There will be a shortage of oranges

3. Prices will stabilize

4. There will be excess supply

The correct answer is: There will be a shortage of oranges

When the price of oranges is set below the equilibrium price, the quantity demanded by consumers increases, while the quantity supplied by producers decreases. This imbalance creates a situation where the demand for oranges exceeds the supply available in the market, leading to a shortage. In a typical market scenario, the equilibrium price is the point at which the quantity of oranges supplied equals the quantity demanded. By setting the price below this level, producers are incentivized to supply less because they receive lower revenue per orange, while consumers are encouraged to buy more due to lower prices. As a result, the market cannot meet the heightened demand, hence causing a shortage of oranges. Understanding this dynamic highlights how pricing mechanisms work in economics, emphasizing the importance of equilibrium in balancing supply and demand.