Suppose the demand and supply curves of coffee are given by:
qD = 1,000 – p
qS = 700 + 2p
Excess demand will exist at?
Answer & explanation
Correct answer: option 4
the correct answer is Option 4: Both 1 and 3
At equilibrium, market supply = market demand.
Equating them, we get 1000-p = 700+ 2p
1000-700 = 2p + p
300 = 3p
100 = p
At any price less than equilibrium price, there is excess demand. Hence, the correct answer is Both 1 and 3.