Question

Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500...

Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case:

Multiple Choice:

excess supply will lead the price of broccoli to fall

excess demand will lead the price of broccoli to fall

excess supply will lead the price of broccoli to rise

excess demand will lead the price of broccoli to rise

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Answer #1

Answer :

excess supply will lead the price of broccoli to fall

Explanation :

When the price of broccoli is $4 per pound, quantity demanded by the buyers is 500 pounds per day

While the quantity supplied by the sellers is 800 pounds per day at this price

So clearly the quantity supplied is greater than the quantity demanded at the given price (800 > 500), thus there exists a situation of excess supply since supply is more than demand.

Now when quantity supplied exceeds quantity demanded, in a free market this drives the price down till the level where quantity demanded will equal the quantity supplied.

Thus answer is : excess supply will lead the price of broccoli to fall

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