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) Ans: The equilibrium price is $3.00 and the equilibrium quantity is 136 loaves of bread.

The following figure shows the demand and supply curves.

b) Ans: If the actual price were above the equilibrium price, then there would be surplus in the market and a downward pressure on the price.

Explanation:

When Qd < Qs , then there is surplus in the market and a downward pressure on the price.

c) Ans: If the actual price were below the equilibrium price, then there would be shortage in the market and an upward pressure on the price.

Explanation:

When Qd > Qs , then there is shortage in the market and an upward pressure on the price.