Question 40
Price DeterminationWhich of the following is a correct definition of equilibrium price?
- A.A price which covers production cost
- B.A price which maximizes entrepreneur's profits
- C.A price at which the quantity demanded equals the quantity supplied
- D.A price at which competitive firm is at equilibrium
- E.A price which stabilizes farmers' income.
Show the answer and explanation
Answer: C (A price at which the quantity demanded equals the quantity supplied)
Explanation
Equilibrium price is where quantity demanded equals quantity supplied, so there is no shortage or surplus.