Select the correct answer.
The market demand for milk in Country X is 18 billion gallons per month, but the supply is 10 billion gallons per month.
What must happen in order to achieve market equilibrium?
A. The monthly supply of milk must decrease by 8 billion gallons.
B. The monthly supply of milk must increase by 28 billion gallons.
C. The monthly supply of milk must increase by 8 billion gallons.
D. The monthly supply of milk must decrease by 28 billion gallons.
Answer (1)
Calculate the difference between demand and supply: 18 − 10 = 8 billion gallons.
Determine that the supply must increase to meet the demand.
Conclude that the supply must increase by 8 billion gallons to achieve market equilibrium.
The monthly supply of milk must increase by 8 billion gallons.
Explanation
Understanding the Problem The problem states that the market demand for milk is 18 billion gallons per month, while the supply is 10 billion gallons per month. Market equilibrium occurs when the supply equals the demand. Therefore, we need to determine how much the supply must change to meet the demand.
Calculating the Difference To find the difference between demand and supply, we subtract the supply from the demand:
Performing the Subtraction De man d − S u ppl y = 18 bi ll i o n g a ll o n s − 10 bi ll i o n g a ll o n s = 8 bi ll i o n g a ll o n s
Determining the Required Change Since the demand is greater than the supply, the supply must increase to reach equilibrium. The calculation shows that the supply must increase by 8 billion gallons to equal the demand.
Stating the Answer Therefore, the correct answer is that the monthly supply of milk must increase by 8 billion gallons.
Examples
In economics, market equilibrium is a state where the supply of an item equals its demand. For example, if a local bakery produces 500 loaves of bread a day and sells all of them, the bakery is in market equilibrium. Understanding and achieving market equilibrium is crucial for businesses to avoid surpluses or shortages, ensuring stable prices and efficient resource allocation. This concept applies to various markets, from agricultural products to financial assets, helping businesses and policymakers make informed decisions about production, pricing, and resource management.
