Home › CA Foundation › Business Economics › Supply › In a market, the demand and supply schedule show…
In a market, the demand and supply schedule shows that at Rs 3 quantity demanded equals quantity supplied at 19 units, while at Rs 5 quantity demanded is 6 and quantity supplied is 31. At a price of Rs 5 the market will experience:
Aexcess demand that pushes price up toward Rs 3
Ba state of equilibrium with no pressure on price
Cexcess supply that pushes price down toward Rs 3
Da permanent shortage that cannot be removed
Answer & Solution
Correct answer: C. excess supply that pushes price down toward Rs 3
1. At Rs 5, quantity supplied (31) exceeds quantity demanded (6).
2. Supply greater than demand is excess supply (a surplus).
3. With few takers, sellers cut price to clear stock.
4. Price falls toward the equilibrium of Rs 3. Excess demand would arise only when demand exceeds supply, which is not the case here.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.11_
Related questions
A noted exception to the law of supply is the supply of labour, where at very high wage raAn increase in the number of firms selling a good in a market, other things constant, willSocial efficiency in a competitive market is achieved at the equilibrium price because at Producer surplus in a market is best described as the benefit producers gain because the pIf the supply of bottled water decreases while demand stays the same, the new market equilIf, at the prevailing price, the quantity demanded of a good exceeds the quantity suppliedThe market price of a good is the level at which the wishes of buyers and sellers coincideA short-run supply schedule for fighter aircraft shows 28 units offered at every price fro