1. one of neither excess supply nor excess demand since the quantity would otherwise have changed.
2. one of excess demand because that is the only reason why the quantity could increase to 24 billion bushels.
3. one of excess supply since the quantity demanded must surely be less than 21 billion bushels.
4. none of above.
Choose the option that yields the correct answer.
The correct answer is option 3. If the quantity of output that will be produced at the current price is 24 billion and the equilibrium quantity is 21 billion, and the supply curve is upward sloping, the current price must be above the equilibrium price. If the demand curve is negatively sloped, the quantity demanded at the current price must then be less than 21 billion. The situation is therefore one of excess supply.
This can be seen from the following figure. Since the supply curve is upward sloping, the current price must necessarily be above the equilibrium price. This implies that as long as the demand curve is negatively sloped the quantity currently demanded must be less than the equilibrium quantity demanded. When the quantity supplied exceeds the quantity demanded there is excess supply. When there is excess supply the price must fall to bring about equilibrium.
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