Question

Problem 3

The following table shows the supply and demand schedules in a market. Show all your work and discuss the following questions.

Price ($)	Quantity Demanded (units)	Quantity Supplied (units)
0	50	0
2	40	15
4	30	30
6	20	45
8	10	60
10	0	75

What is the equilibrium price in this market? Equilibrium Quantity? Why?

At a price of $2, will there be a surplus or shortage of units in this market? Why?

At a price of $8, how large of a surplus will there be in this market? Why?

If the supply curve shifts to the right, will the price in this market rise or fall? Why?

Answer 1

The equilibrium in this market is where quantity demanded and quantity supplied are equal. Equilibrium price = $4 . And equilibrium quantity = 30 units.

At a price of $2 , there will be shortage Because quantity demanded is greater than quantity supplied .And shortage amount is equal to (40-15) = 25 units.

At a price of $8 ,there will be a surplus Because quantity supplied is more than quantity demanded .And surplus amount = (60-10) = 50 units.

If the supply curve shift to the right , then price in this market will fall because the demand remains same and to meet the demand ,price has to fall to reach the equilibrium.