Question

In a given market, the market equilibrium price and quantity are $120 and 5 million units, respectively. At a price of $100, 4.8 million units are supplied, and 5.2 million units are demanded. It can be said that at a price level of $100 there is a _____.(1 point)
A. a surplus of 0.4 million units
B. a surplus of 0.2 million units
C. a shortage of 0.4 million units
D. a shortage of 0.2 million units

Answer 1

In this market, it can be concluded that at a price level of $100 per unit, there is C. a shortage of 0.4 million units.

• This market shortage occurs because 0.4 million units of the goods were not supplied.  There is excess demand and shortage in supply.  

• The market demand increased from the equilibrium quantity of 5 million units to 5.2 million while the market supply reduced from the equilibrium quantity of 5 million units to 4.8 million.

• The shortage of 0.4 million units results from the difference between the quantity demanded (5.2 million) and the quantity supplied (4.8 million) as a result of reduced price.

Thus, the market shortage shows the reduced willingness of suppliers to supply goods at the new price of $100 per unit instead of at the acceptable equilibrium price of $120 per unit.

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Answer 2

Answer:

C. a shortage of 0.4 million units