Question

121. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be:

A. 0F and 0C respectively.
B. 0G and 0B respectively.
C. 0F and 0A respectively.
D. 0E and 0B respectively.

Answer 1

The equilibrium price and quantity can be determined by finding the intersection point of the demand and supply curves. At the equilibrium price, the quantity demanded is equal to the quantity supplied.

Step-by-step explanation:

The equilibrium price and quantity can be determined by finding the point where the demand curve (D) and the supply curve (S) intersect. In this case, the intersection occurs at point E, where the equilibrium price is $1.40 and the equilibrium quantity is 600 units.

At any other price, the quantity demanded and quantity supplied will not be equal, resulting in either surplus or shortage. For example, at a price above equilibrium, there will be excess supply, and at a price below equilibrium, there will be excess demand.