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Market Equilibrium and Price Changes: Question 2

Syllabus 2.4, 2.5

Multiple choice 1 mark

A garden centre records the following demand and supply schedule for beach umbrellas, showing the quantity that customers want to buy and the quantity that suppliers want to sell each week at different prices.

Price ($) Quantity demanded (hundreds of umbrellas per week) Quantity supplied (hundreds of umbrellas per week)
10 50 10
15 40 20
20 30 30
25 20 40

The garden centre currently prices beach umbrellas at $15. Using the table, what is the size and type of the imbalance between quantity demanded and quantity supplied at this price?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Find the equilibrium price first, for reference

Checking each row for where Qd = Qs: at $20, quantity demanded (30 hundred) equals quantity supplied (30 hundred), so $20 is the equilibrium price. Since the garden centre is charging $15, which is below equilibrium, we should expect a shortage (excess demand), not a surplus.

Step 2: Read the quantities at $15

From the table, at a price of $15:

  • Quantity demanded =40= 40 hundred umbrellas per week
  • Quantity supplied =20= 20 hundred umbrellas per week

Step 3: Calculate the size of the imbalance

Quantity demanded is greater than quantity supplied, so this is a shortage: 40−20=20 (hundreds of umbrellas)40 - 20 = 20 \text{ (hundreds of umbrellas)}

Converting hundreds into an actual number of umbrellas: 20×100=200020 \times 100 = 2000

Step 4: Rule out the other options

  • Option B reverses the direction: quantity demanded exceeds quantity supplied at $15, so this is a shortage, not a surplus.
  • Options C and D understate the size of the imbalance by a factor of two, likely from misreading one of the two quantity columns.

Final answer

At $15, there is a shortage of 2000 umbrellas per week, option A.