ACCA Applied Knowledge · Business and Technology · Microeconomic factors
The market for a product has demand Qd = 120 − 2P and supply Qs = 20 + 3P, where P is the price in $. The government imposes a minimum price of $24. What is the result in the market?
Calculation gives equilibrium at $20, so a $24 minimum price is binding and causes a surplus. Demand is 72 units and supply is 92 units, so excess supply is 20 units.
- AExcess supply of 48 unitsCorrect
- BExcess demand of 48 units
- CExcess supply of 30 units
- DThe market clears at 72 units
Explanation
Equilibrium: 120 − 2P = 20 + 3P gives P = 20, so $24 is above equilibrium and binding. At $24, Qd = 120 − 48 = 72 and Qs = 20 + 72 = 92. Excess supply is 92 − 72 = 20 units. Check: option A states 48, which is wrong; the computed surplus is 20 units.
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