Suppose that the equilibrium tuition at College X is $2,000 a semester and the tuition that students are charged is $1,000 a semester. At $1,000 tuition a semester, a. quantity demanded of openings at the college is greater than quantity supplied. b. quantity supplied of openings at the college is greater than quantity demanded. c. quantity supplied of openings at the college equals quantity demanded. d. quantity supplied of openings equals demand. e. none of the above

A. Quantity demanded of openings at the college is greater than the quantity supplied

Explanation:

The equilibrium price is the price at which the quantity demanded for a particular good or service is equal to the quantity supplied.

(Please refer diagram)

A tuition charge of $1000 is less than the equilibrium quantity. At this point, supply is lower than demand because suppliers are discouraged to produce at this price level but consumers are encouraged since they are getting a low price. This creates a shortage of openings at the college between Qs - Qd (highlighted area in the diagram). In the long run however, the shortage will push prices up until it reaches the equilibrium point, unless there is legally imposed price ceiling that prevents the price from rising any higher.

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