Question

Janet, who sells pen, has provided you with the following information, which she feels is not correct:

Supply (Q) Demand (Q) Price ($)

50 60 25

70 40 20

In addition, she has indicated that she is very confident that the equilibrium quantity is 55 pens (this has been verified).

Briefly explain to her why the information is correct/not correct and suggest any adjustment(s) based on the principles you learnt in units.

Answer 1

The information is incorrect.

Quantity demanded follows the law of demand which states that as price of a good falls (rises), its quantity demanded rises (falls). In this case, as price falls from $25 to $20, quantity demanded falls from 60 to 40, which violates the law of demand.

Quantity supplied follows the law of supply which states that as price of a good falls (rises), its quantity supplied falls (rises). In this case, as price falls from $25 to $20, quantity supplied rises from 50 to 70, which violates the law of supply.

Therefore by all possibilities, the demand and supply data have been interchanged.