Three individuals have $1000 and identical preferences for gum, g, and cigarettes, s, as measured by the utility function U(g,s) = 10g0.9a0.1. The price of gum is $9 and the price of cigarettes is $12. What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?
There will be a surplus of 2/3 cigarettes.
There will be a surplus of 3 cigarettes.
There will be a shortage of 3 cigarettes.
There will be a shortage of 2/3 cigarettes.