What happens to prices when there is high supply and low demand?

What happens to prices when there is high supply and low demand?

• A. No change
• B. Lower prices
• C. Equilibrium
• D. Higher prices

Answer: (B)

Prices fall when there is more supply than demand. When there’s a surplus—more of the product available than buyers want at the current price—sellers compete to attract buyers by lowering prices. That price drop continues until the excess supply is cleared or a new equilibrium is reached. So the result is lower prices. The other options don’t fit because no change would imply the surplus isn’t affecting price, equilibrium is the balance point after adjustments (not the immediate reaction to a surplus), and higher prices would happen if demand were stronger or supply weaker.

Prices fall when there is more supply than demand. When there’s a surplus—more of the product available than buyers want at the current price—sellers compete to attract buyers by lowering prices. That price drop continues until the excess supply is cleared or a new equilibrium is reached. So the result is lower prices. The other options don’t fit because no change would imply the surplus isn’t affecting price, equilibrium is the balance point after adjustments (not the immediate reaction to a surplus), and higher prices would happen if demand were stronger or supply weaker.