Question

# 1. Presented below are demand and supply schedules for bread in East Yeastville, Colorado.                             &

1. Presented below are demand and supply schedules for bread in East Yeastville, Colorado.

|   price | quantity demanded | quantity supplied |

| (\$/loaf) | (loaves / week)   | (loaves / week) |

|   5.00   |       1000        |       6000        |

|   4.50   |       1300        |       4500        |

|   4.00   |       1600        |       4000        |

|   3.50   |       2000        |       3500        |

|   3.00   |       3000        |       3000        |

|   2.50   |       3200        |       2700        |

|   2.00   |       4000        |       2200        |

|   1.50   |       4500        |       1800        |

|   1.00   |       5400        |       1400        |

|    .50   |       7000        |       1200        |

a. Is the Law of Demand satisfied? Yes / no . How do you know?

b. What is the equilibrium price? _______ And the equilibrium quantity? ________

c. At a price of \$4.00, is there a shortage or surplus? __________. How big is it? ______

d. At a price of \$1.00, how much would be bought and sold? _________

e. Suppose that supply increases by 1800 units at each price. At the original equilibrium price is there

a shortage or a surplus? When the market adjusts to its new equilibrium, what

will the new price be? And the new equilibrium quantity?

a) yes

Law of demand says that demand and price are inversely related, other things constant.

Quantity demanded is increasing with decrease in price.

b) equilibrium is reached when quantity demanded is equal to quantity supplied. Equilibrium quantity is 3000 and equilibrium price is 3.

c) there is surplus because supply 4000 is greater than demand 1600 by. 4000-1600= 2400.

d) At price 1 demand is greater than supply, so all the quantity supplied will be bought and sold, i.e.1400

e) there is a surplus as supply is now greater than demand.

Price adjusts and new equilibrium is reached when quantity demanded is 4000 and new quantity supplied is 2200+1800= 4000 at equilibrium price is 2.

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