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Unformatted text preview: d. ice-cream Price of Price Ice-Cream Cone Cone Supply Equilibrium price Equilibrium $2.00 Demand Equilibrium Equilibrium quantity quantity FIGURE 8 7 Quantity of Ice-Cream Cones Market Not in Equilibrium Market (a) Excess Supply Price of Price Ice-Cream Cone Cone $2.50 Surplus (b) Excess Demand Price of Price Ice-Cream Cone Supply Cone $2.50 Supply 2.00 2.00 Demand 4 FIGURE 9 7 Quantity 10 Quantity of Ice-Cream Cones Cones Demand Shortage 4 7 10 Quantity of Quantity Ice-Cream Cones Cones Surplus a situation in which quantity supplied is grater than quantity demanded Shortage a situation in which quantity demanded is greater than quantity supplied In panel (a), there is a surplus. Because the market price of $2.50 is above the equilibrium price, the quantity supplied (10 cones) exceeds the quantity demanded (4cones). Suppliers try to increase sales by cutting the price of a cone, and this moves the price toward its equilibrium level. In panel (b), there is a shortage. Because the market price of $1.50 is below the...
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