Refer to Figure 7. If the price is $25,
1) there would be a surplus of 300 units.
2) there would be a shortage of 300 units.
3) there would be a surplus of 200 units.
4) there would be a shortage of 200 units.
Answer
The correct answer is "option 1"
1) there would be a surplus of 300 units.
In the given graph the equlibrium is established at the point
(600,20)
The equilibrium is established where the quantity demanded is equal
to the quantity supplied.
At a price of $25, the quantity demanded is 500 and the quantity supplied is 800.
Surplus happens when the quantity supplied exceeds the quantity demanded.
surplus= quantity supplied - quantity demanded
=800-500
=300
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