Question

1. Suppose the predicted equilibrium price of a bottle of hand sanitizer is $4 bottle but sellers of sanitizer are mistakenly selling bottles for $3 bottle. Is there a shortage or surplus of sanitizer? What would we expect to happen to prices? Why?

There is a ________________ of sanitizer. We would expect the price to _______________ because there are ______________ of sanitizer who are _____________ to pay more than $3/bottle.

Answer 1

AS WE CAN SEE IN THE ROUGH GRAPH BELOW-

THE INTERSECTION OF DEMAND AND SUPPLY IS THE EQUILIBRIUM POINT

WHERE PRICE IS 4 AND QUANTITY IS Qe

WHEN THE SELLER OF SANITIZER ARE MISTAKENLY SELLING FOR PRICE $3

THEN FROM GRAPH WE CAN SEE THAT THEY ARE SUPPLYING Q1 AND THE DEMAND IS Q2

HERE Q2>Q1 SO DEMAND IS MORE AND HENCE THERE IS A SHORTAGE OF SUPPLY

THE PRICE WILL INCREASE TO EQUILIBRIUM PRICE I.E 4

IT IS BECAUSE AS THE DEMAND WILL BE HIGHER THE PRICE WILL INCREASE EVENTUALLY AND HENCE THE SUPPLY WILL INCREASE AND QUANTITY WILL INCREASE FROM Q1 TO Qe.

THERE IS A SHORTAGE OF SANITIZER . WE WOULD EXPECT THE PRICE TO RISE BECAUSE THERE ARE MORE BUYERS OF SANITIZER WHO ARE WILLING TO PAY MORE THAN $3/BOTTLE.

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