Price Adjustment Eliminates Surplus

Steps:

• Identify surplus: Quantity supplied exceeds quantity demanded at current price.
• Recall market mechanism: In a free market, prices adjust to balance supply and demand.
• Analyze surplus effect: High price causes excess supply, prompting sellers to lower prices.
• Determine equilibrium: Falling price increases quantity demanded and decreases quantity supplied until they equalize.

Why B is correct:

• Law of supply and demand: A surplus signals price is too high, so a fall in price shifts the market toward equilibrium where quantity supplied equals quantity demanded.

Why the others are wrong:

• A: Decrease in demand worsens surplus by reducing quantity demanded further.
• C: Government minimum price prevents natural price fall, maintaining or increasing surplus.
• D: Increase in supply adds more excess, enlarging the surplus.

Final answer: B