Question

The market for bread has the following demand and supply schedules:

Price                      Quantity Demanded Loaves Quantity Supplied Loaves
$1.50                             224 59
$2.00                             175 114    
$2.50                             145                                                       128                                                              
$3.00                             136                                                       136                                                                   
$3.50                             110                                                       164                                         
$4.00 65                                                        215

(a) Graph the demand and supply curves. What is the equilibrium price and quantity in this market for bread?

(b) If the actual price were above the equilibrium price, what is taking place in the market?

(c) If the actual price were below the equilibrium price, what is taking place in the market?

Answer 1

(a) By plotting the demand and supply curves,we get graph as shown below :

Equilibrium occurs where Qd=Qs, therefore the equilibrium price= $3 and equilibrium quantity= 136 loaves of bread.

(b) If the actual price were above the equilibrium price, then Qd<Qs, this implies that there is surplus of loaves of bread exist in the market.

(c) If the actual price were below the equilibrium price,then Qd>Qs, this implies that there is shortage of loaves of bread exist in the market.