Registered Environmental Manager (REM) Practice Exam

What defines the equilibrium price in a market?

1. The price where demand exceeds supply

2. The price at which supply equals demand

3. The price set by government regulations

4. The highest price consumers are willing to pay

The correct answer is: The price at which supply equals demand

The equilibrium price in a market is defined as the price at which the quantity of a product demanded by consumers is equal to the quantity supplied by producers. At this price point, the market is in a state of balance, where there is neither a surplus nor a shortage of goods. When supply meets demand, it reflects the most efficient allocation of resources within that market. This equilibrium can shift due to changes in consumer preferences, production costs, or external regulations, but at the equilibrium price, the forces of supply and demand are in harmony, ensuring stability in transactions. Understanding this concept is essential for analyzing how markets function and how prices are determined in a competitive environment. Other options suggest scenarios that do not represent this balance: a price where demand exceeds supply indicates a shortage, government-regulated prices may not reflect market dynamics, and the highest price consumers are willing to pay does not account for the supply side, thus failing to establish a true market equilibrium.