Given the Supply and Demand graph 1 above A price ceiling at

Given the Supply and Demand graph 1 above...

A price ceiling at $35 would result in

excess supply of 600

Given the Supply and Demand graph 1

A price ceiling at $15 would result in

excess demand of 400

Given the Supply and Demand graph 1 above...

A price floor at $35 would result in

excess demand of 400

excess supply of 400

Price $40 35 30 25 20 10 100 200 300 400 500 600 700 800 Quantity

Solution

Question 1: Option 3: None of the above

Explanation: The equilibrium price is $25. A price ceiling above the equilibrium price is not binding. So, it will not affect the demand or supply.  

Question 2: Option 5: Excess demand of 400

Explanation: When the price ceiling is below the equilibrium price, it will be binding and affect the demand and supply. When the price is $15, supply is of 200 units and demand is of 600 units. So, there is a demand surplus of 600 - 200 = 400 units.

Question 3: Option 1: Excess supply of 400

Explanation: When a price floor is above the equilibrium price, it will be binding. When the price is $35, supply is of 600 units and demand is of 200 units. So, there is a supply surplus of 600 - 200 = 400 units.