Figure 1 18 16 t 14 12 10 10 20 30 40 50 60 70 80 90 suaxtity Refer to Figure 1:

Question

Figure 1 18 16 t 14 12 10 10 20 30 40 50 60 70 80 90 suaxtity Refer to Figure 1: If there is currently a surplus of 10 units of the good, then the law a) demand predicts that the price will drop by less than $2 to eliminate the surplus. b) supply predicts that the price will drop by less than $2 to eliminate the surplus. c) supply and demand predicts that the price will drop by $2 to eliminate the surplus d) supply and demand predicts that the price will drop by less than $2 to eliminate the surplus.

Explanation / Answer

Surplus of 10 units occurs when market price is greater than 10. At $ 12, surplus = Qs at 12 - Qd at 12 = 60 - 40 = 20 units so surplus of 10 units occurs at price of $ 11.

To eliminate surplus, price should be reduced to $ 10.

d) supply and demand predicts that the price will drop by less than $ 2 to eliminate the surplus.

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