Suppose the demand and supply curves are given by:

q_D = 1,000 – p

q_S = 700 + 2p

At p = 500, there will be

Excess supply

The correct answer is option 3: Excess supply

Putting p = 500 in q_d,

we get q_d =1000-p

q_d= 1000 – 500

q_d= 500.

Putting p = 500 in q_s,

we get q_s= 700+2p

q_s= 700 + 2(500)

q_s= 1700.

Clearly, supply is greater than demand. Hence, there is excess supply.