When supply exceeds demand, sellers must lower prices to stimulate sales, when demand exceeds supply, prices increase as buyers compete to buy goods. What this theory is called in economics?
Correct answer: B. Supply and Demand theory
- A. Cost push theory
- B. Supply and Demand theory
- C. Fundamental theory
- D. Ricardo's theory
Explanation
The supply-and-demand theory explains price adjustment: excess supply puts downward pressure on prices, while excess demand creates upward pressure. Cost-push theory explains inflation from rising production costs, not this general market mechanism.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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