Question

Market equilibrium and disequilibrium The following graph shows the monthly demand and supply curves in the market for calendars. Use the graph input tool to help you answer the following questions. Enter an amount into the Price field to see the quantity demanded and quantity supplied at that price. You will not be graded on any changes you make to this graph. 0 50 100 150 200 250 300 350 400 450 500 80 72 64 56 48 40 32 24 16 8 0 PRICE (Dollars per calendar) QUANTITY (Calendars) Demand Supply Graph Input Tool Market for Calendars Price (Dollars per calendar) 16 Quantity Demanded (Calendars) 310 Quantity Supplied (Calendars) 100 The equilibrium price in this market is $ per calendar, and the equilibrium quantity is calendars bought and sold per month. Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices. Price Shortage or Surplus Shortage or Surplus Amount Pressure (Dollars per calendar) (Calendars)

Answer 1

Equilibrium is the point where number of quantity demanded = Number of quantity supplied

So we have to look at the point where demand curve is intersecting supply curve.

The point where demand curve is intersecting supply curve, price is $40, and quantity is 250 hats,

So equilibrium price is $40 and equilibrium quantity is 250 hats

When price is 48,

Quantity Demanded = 230(check the exact quantity using the tool)

Quantity Supplied =300(Check the exact quantity using the tool)

So there is surplus of 300-230=70 hats in the market

And since there is surplus, there will be downward pressure on price,

When price is 32,

Quantity Demanded =270(Check the exact quantity using the tool)

Quantity Supplied =200(Check the exact quantity using the tool)

So there is shortage of 270-200=70 hats in the market

And since there is shortage, there will be upward pressure on price.