Question

exhibit 3-16 supply and demand curves for chairs
in exhibit 3-16, assume that the market price of chairs is $5 each. this price is:
a. not an equilibrium price, since there is an excess demand at a price of $5.
b. an equilibrium price.
c. not an equilibrium price, since there is an excess supply at a price of $5.
d. not an equilibrium price, since the rate at which chairs are being supplied is greater than the rate at which they are being demanded.

Explanation:

1. First, identify the equilibrium point on the graph: where supply (S) and demand (D) intersect, the equilibrium price is $10, so $5 is not equilibrium, eliminating option b.
2. At a price of $5:

• Trace horizontally from $5 on the y-axis to the supply curve (S): this corresponds to 0 thousand chairs supplied per week.
• Trace horizontally from $5 on the y-axis to the demand curve (D): this corresponds to 4 thousand chairs demanded per week.

1. Since quantity demanded (4,000) is greater than quantity supplied (0), there is excess demand. This matches option a, and eliminates options c and d which describe excess supply.

Answer:

a. not an equilibrium price, since there is an excess demand at a price of $5.