Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen

Economics Dec 13, 2020

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a

a. surplus to exist and the market price of roses to decrease.

b. shortage to exist and the market price of roses to increase.

c. shortage to exist and the market price of roses to decrease.

d. surplus to exist and the market price of roses to increase.

Expert Solution

The correct option is a. Surplus to exist and the market price of roses to decrease.

Here, the equilibrium price of roses is $30 per dozen and the current market price is $40. Therefore, at this level, there is a surplus of roses in the market as at the current price, the quantity demanded of the roses is less than the quantity supplied for roses in the market. Therefore, it can be stated that a surplus will exist in the roses market and the market price will be expected to decline.

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