Price $20 18 16 14 12 10 11 4 2 O 10 20 30 40 50 60 70 80 90 100 Quantity Refer to the Figure above

Economics Aug 06, 2020

Price $20 18 16 14 12 10 11 4 2 O 10 20 30 40 50 60 70 80 90 100 Quantity Refer to the Figure above. If price in this market is currently $14, there would be A) excess demand of 40 B) excess demand of 20 C) excess supply of 40 D) excess supply of 20

Expert Solution

When price is $14,

? The corresponding supply (S) = 70

? The corresponding demand (D) = 30

Hence, we can see that, at price $14, supply is higher than demand. Hence, there is excess supply in the market.

Hence, Excess supply is

= (S - D)

= 70 - 30

= 40

If the market price is $14, there would be excess supply of 40.

We eliminate options (A), (B) and (D) as they do not match our result.

Answer is option (C) i.e. excess supply of 40.

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