In a wheat market, qD = 200 – p and qS = 120 + p (p in rupees per kg). Excess demand is positive:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → at every price below Rs 40
Excess demand is quantity demanded minus quantity supplied.
\( ED(p) = (200 - p) - (120 + p) \)
\( ED(p) = 80 - 2p \)
This is positive when 80 − 2p > 0, that is, when p < 40. Rs 40 is the equilibrium price, so excess demand is positive at every price below Rs 40.
At Rs 80 itself, demand is 120 and supply is 200, so there is excess supply.
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