At a price of Rs.50 per chocolate, the demand is 700 chocolates and the supply is 900 chocolates. What is likely to be its effect on the price of chocolates?
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At price of Rs. 50 per chocolate, demand is 700 units and supply is 900 units, there is excess supply of 200 units. This will lead to competition among buyers as they will be unable to sell what they want at the ongoing market price i.e. Rs. 50. Suppliers will start reducing the price. Reduction in price will lead to expansion of demand and contraction in supply till equilibrium is established which will be at a price lower than that of Rs. 50 per unit.