The demand and supply functions for a competitive market are given by:
Qd=360−8P Q_d = 360 - 8P Qd=360−8P Qs=−120+12P Q_s = -120 + 12P Qs=−120+12Pwhere P P\,P is the price per unit in pounds (£) and Q Q\,Q is the weekly quantity traded. The market is illustrated in the diagram below:
Based on this information, which of the following statements correctly identifies the equilibrium price and the market forces operating if the price is currently £20?
The equilibrium price is £24. At a price of £20, there is an excess demand of 80 units, which exerts upward pressure on the price to return to equilibrium.
The equilibrium price is £24. At a price of £20, there is an excess supply of 80 units, which exerts downward pressure on the price.
The equilibrium price is £12. At a price of £20, there is an excess supply of 80 units, which exerts downward pressure on the price.
The equilibrium price is £24. At a price of £20, there is an excess demand of 80 units, which exerts downward pressure on the price.
