Question

The table shows the demand and supply schedules for hot chocolate If the price is $1.40 a cup, the quantity supplied the quantity demanded and of hot chocolate exists Price (dollars per cup) 1.40 1.75 Quantity Quantity demanded supplied (cups per day] 400 340 360 2 10 360 320 380 245 400 O A. is less than a surplus OB. equals, neither a shortage nor a surplus OC. is greater than a shortage OD. is greater than a surplus O E. is less than a shortage 280 240 420 As the market moves to equilibrium. O A. the price of a cup rises, the quantity demanded increases, and the quantity supplied decreases OB. the price of a cup falls, the quantity demanded increases, and the quantity supplied decreases Click to select your answer

Answer 1

The equilibrium exists when the quantity demanded of w product is exactly equal to the quantity supplied at the same price.

When the quantity demanded is more than the quantity supplied then there is shortage in the market and when the quantity demanded is less than the quantity supplied then there is surplus in the market.

At price of $1.40, the quantity demanded is 400 units and quantity supplied is 340 units. So, the quantity supplied is less than the quantity demanded and there exists a shortage of hot chocolate in the market.

The equilibrium exists when the price is $1.75 as both the quantity demanded and the quantity supplied is equal at this price. The equilibrium quantity is 360 units. So, the quantity demanded decreases by 40 units and the quantity supplied increases by 20 units at equilibrium.