The following figure shows the demand curve, D, and the supply curve, S, for calculators in Barylia. The world price of calculators is $40.

-Refer to the figure above.What is the domestic price of calculators in Barylia?

Question

The following figure shows the demand curve, D, and the supply curve, S, for calculators in Barylia. The world price of calculators is $40.
 
-Refer to the figure above.What is the domestic price of calculators in Barylia?

Quizplus · Accepted Answer

The domestic price in Barylia will be determined by the intersection of the demand and supply curves. At a price of $40, the quantity demanded is 4 million calculators and the quantity supplied is 6 million calculators. This means that there is a surplus of 2 million calculators at the world price. As suppliers in Barylia try to get rid of this surplus, they will lower their prices. The domestic price will continue to fall until it reaches $30, which is where the quantity supplied equals the quantity demanded. Therefore, the domestic price of calculators in Barylia is $30 per unit.

The Following Figure Shows the Demand Curve, D, and the Supply