Question

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

Price Quantity demand Quantity supplied

4$ 100 25

5$ 75 50

6$ 60 60

7$ 40 90

8$ 25 100

a. Graph the demand and supply curves?

b. What is equilibrium price and quantity?

c. If the actual price in the market is 5$, would this create a surplus or shortage? What is the amount of this surplus or shortage? What shall sellers do in this case?

d. If the actual price in the market is 8$, would this create a surplus or shortage? What is the amount of this surplus or shortage? What shall sellers do in this case?

e. If McDonald's made an offer festival (promotion) show the effect on the pizza market.

f. If the price of mozzarella cheese increased, show the effect on pizza market.

g. Calculate the price elasticity of demand if the price increased from 5$ to 6$ using midpoint formula.

h. How will the price increase affect your total revenue?/

i. If the government sets a price floor at 4$ will this create a shortage/surplus?

j. If the government sets a price ceiling at 5$, will this create a shortage/surplus?

Answer 1

A)

B) Equilibrium is at where demand= supply=60

Equilibrium price=6$

C)At p=5$ ,Qd=75 ,Qs=50

So demand is higher than supply,so there is shortage of 25 units .

Knowing shortage,seller should increase the Increase he price to 6$ ,which lead to decrease in QUANTITY demanded and increase in Quantity supplied and market will at Equilibrium at p=6$ with Q=60

D) at P=8$, Qd=25,Qs=100

So demand is lower than supply ,so there is surplus of 75 units.

Seller will decrease price to remove excess supply of good ,which lead to increase in Quantity demanded and Decrease in Quantity supplied and economy would towards equilibrium points.