Questions: Suppose the accompanying graph depicts a market for one pound bags of candy. Place the line labeled Excess Demand at a price that would generate an excess demand, or shortage. Then, determine the size of the excess demand. Excess Demand =

Solution Steps

• Locate the point where the supply and demand curves intersect on the graph. This is the equilibrium point where the quantity supplied equals the quantity demanded.

• Identify a price level above the equilibrium price. This is where the quantity demanded exceeds the quantity supplied, creating excess demand.

• At the chosen price level, find the quantity demanded and the quantity supplied.
• Subtract the quantity supplied from the quantity demanded to determine the excess demand.

Final Answer