Consider a perfectly competitive market for frozen meals. The demand for frozen meals is given by Pd=100-Q and the supply of frozen meals is given by Ps=10+2Q. Which of the answers below is true? Group of answer choicesIf P=50, then there is excess supplyIf P=50, then there is excess demandIf P=80, there is no excess supply and no excess demandIf P=80, the market is at its equilibrium stateNone of the other answers are correct
Question
Consider a perfectly competitive market for frozen meals. The demand for frozen meals is given by Pd=100-Q and the supply of frozen meals is given by Ps=10+2Q. Which of the answers below is true? Group of answer choicesIf P=50, then there is excess supplyIf P=50, then there is excess demandIf P=80, there is no excess supply and no excess demandIf P=80, the market is at its equilibrium stateNone of the other answers are correct
Solution 1
To determine whether there is excess supply or demand, we need to compare the quantity demanded and the quantity supplied at the given price.
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If P=50, then the quantity demanded is Qd = 100 - P = 100 - 50 = 50. The quantity supplied is Qs = (P - 10) / 2 = (50 - 10) / 2 = 20. Since Qd > Qs, there is excess demand. So, "If P=50, then there is excess demand" is true.
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If P=80, then the quantity demanded is Qd = 100 - P = 100 - 80 = 20. The quantity supplied is Qs = (P - 10) / 2 = (80 - 10) / 2 = 35. Since Qd < Qs, there is excess supply. So, neither "If P=80, there is no excess supply and no excess demand" nor "If P=80, the market is at its equilibrium state" is true.
Therefore, the correct answer is "If P=50, then there is excess demand".
Solution 2
To determine whether there is excess supply or demand, we need to compare the quantity demanded and the quantity supplied at the given price.
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If P=50, substitute P=50 into the demand and supply equations to find the quantities:
Quantity demanded: Qd = 100 - P = 100 - 50 = 50 Quantity supplied: Qs = (P - 10) / 2 = (50 - 10) / 2 = 20
Since Qd > Qs, there is excess demand. So, "If P=50, then there is excess demand" is true.
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If P=80, substitute P=80 into the demand and supply equations to find the quantities:
Quantity demanded: Qd = 100 - P = 100 - 80 = 20 Quantity supplied: Qs = (P - 10) / 2 = (80 - 10) / 2 = 35
Since Qd < Qs, there is excess supply. So, neither "If P=80, there is no excess supply and no excess demand" nor "If P=80, the market is at its equilibrium state" is true.
Therefore, the correct answer is "If P=50, then there is excess demand".
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