B3. The Equilibrium Price and Quantity

What is the equilibrium price in a market?

• The price set by the government to stabilize the market.

• The price where the quantity demanded equals the quantity supplied.

• The price that maximizes profits for sellers.

• The price where buyers and sellers agree to trade.

What happens when there is a surplus in the market?

• The market stops functioning temporarily.

• The government intervenes to reduce supply.

• Sellers lower their prices to attract buyers.

• Buyers compete by bidding higher prices.

How do buyers respond during a shortage in the market?

• They bid higher prices to secure goods.

• They stop purchasing until supply increases.

• They wait for sellers to lower prices.

• They demand government intervention.

What ensures that gains from trade are maximized in a free market?

• Government regulations on trade.

• Setting a fixed price for all goods.

• Allocation of goods to the highest value buyers and lowest cost sellers.

• Equal distribution of goods among all buyers.

Why did Adam Smith describe the market process as an 'invisible hand'?

• Because it is controlled by unseen forces.

• Because it operates without any rules.

• Because it promotes social good through self-interest.

• Because it requires no human intervention.