Question

Exhibit 3-16 Supply and demand curves for chairs 20.00 Price 15.00 per chair (dollars 10.00 5.00 D 5 0 1 2 3 4 Quantity of chairs (thousands per week) In Exhibit 3-16, assume that the market price of chairs is $15 each. This price is an equilibrium price. not an equilibrium price, since there is an excess demand at a price of $10 an equilibrium price, since suppliers can store inventories in their warehouses not an equilibrium price, since the rate at which chairs are being supplied is greater than the rate at which they are being demanded.

Answer 1

In fig. 3-16, the equilibrium price is $10 because here the market demand curve and supply curve are intersecting and forms the equilibrium point in market where quantity demanded equals the quantity supplied. So if the price is above the equilibrium point then, there is an excess supply which means the quantity supplied is more than the quantity demanded. And, if the price is below this point then there is excess demand which leads to shortage, that means the quantity demanded is more than the quantity supplied.

Here the case is, market price is above the equilibrium price, therefore, it is not an equilibrium point and market supply is greater than the market demand. Option D is correct.

​​​​​​As per fig 3-3 Graph A is represeting the effect on the soup as because the complementary goods will have a negative cross elasticity of demand. If the price of one good increases, demand for both complementary goods will fall and vice versa. Therefore,when price of crackers falls its demand increases and similarly the demand for soup will rise. Option A is correct.