The Ruritanian Ministry of Health has discovered that widgets, a biological cousin to widgets, have important positive side effects. To ensure that all Ruritanian citizens can afford to buy widgets, they have set a ceiling price of 2 kroner per wodget. Not surprisingly, since the equilibrium price is 4 kroner, a black market has developed for wodgets. Required:
a. What is the quantity demanded of wodgets at 2 kroner?
b. What is the excess supply at a price of 2 kroner?

a. 80 widgets

b. -55 widgets

Explanation:

a. At the price ceiling of 2 kroner per widget, suppliers on the graph are only willing to supply 25 widgets yet the demand at that point is 80 widgets.

b. An excess of supply would imply that Suppliers are supplying more than people are demanding. At a price of 2 Kroner, that is not the case. There is a shortage instead.

Supply excess = Quantity supplied - Quantity demanded

= 25 - 80

= -55 widgets

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