Price Mechanism in Market Equilibrium

Steps:

• Demand fall creates surplus at original price, as quantity supplied exceeds quantity demanded.
• Price decreases to restore balance by reducing quantity supplied and increasing quantity demanded.
• This adjustment signals market participants to adapt production and consumption.
• Evaluate choices against role of price in coordinating supply and demand.

Why B is correct:

• Falling price signals producers to cut output, aligning supply with lower demand per the law of supply.

Why the others are wrong:

• A: Falling demand causes surplus, not shortage; price rise eliminates shortages.
• C: Price fall increases consumer surplus by lowering cost to buyers.
• D: Lower price boosts quantity demanded, countering demand fall.

Final answer: B