Question 16 of 28 - Ch. 3 HWQuestion 8 Clickedï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·Assignment Score:ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·ï‚·

ï‚·ï‚·Question 16 of 28Suppose the accompanying graph depicts a market for one pound bags of candy. Place the linelabeledExcess Demandat a price that would generate an excess demand (shortage). Then,determine the size of the excess demand.Market for CandyPrice per bagQuantity (millions of bags)012345678910012345678910DSExcess DemandExcess Demand =million bagsSolutionExcess demand occurs when the quantity demanded is greater than the quantity supplied. At theequilibrium price, quantity demanded is equal to quantity supplied. Therefore, excess demandonly exists when the price is less than the equilibrium price. When price is above equilibrium,quantity supplied is greater than quantity demanded, resulting in excess supply, or a surplus.Graphically, equilibrium occurs at the intersection of the supply and demand curves. For thisproblem, the supply and demand curves intersect at a price of $5. Of the three possible locationsfor the excess demand line, $3 is the only one below the equilibrium.To calculate the size of the excess demand, find the difference between quantity demanded andquantity supplied at $3. At $3, quantity demanded is 7 million bags and quantity supplied is 3million bags. There are 4 million more bags demanded than supplied. Therefore, the excessdemand is 4 million bags.4