Question

Data response Questions:

The demand and supply schedules of good X are given below in the table below.

Px ($)	Quantity demanded	Quantity supplied
1	120	0
2	100	20
3	80	40
4	60	60
5	40	80
6	20	100

1. What is the equilibrium price and quantity?
2. What would be the excess demand or supply if the price were:
   1. $2
   2. $6

3. If there was an increase in income and the product was an inferior good what would be the equilibrium price and quantity if 20 units less were demanded at each price?

Answer 1

A) As we can see Equilibrium will be at where both Quanitity  supply and Quantity demand will be equal . So as we can see in the table, Quantity demand = Quantity supply at 60 units . Hence corresponding Equilibrium price is $4 and quantity is 60 units .

B) So at price = $2 , Quantity demand = 100 units , Quanitity supply = 20 units

Excess demand = 100 - 20 = 80 units

Now ,

At price = $6 , Quantity Supply = 100 units , Quanitity Demand = 20 units

Excess Supply = 100 - 20 = 80 units .

C) So If there was an increase in income and the product was an inferior good , and each quantity demand will be 20 units less . So in such case , Quanity demand = Quantity supply at 50 units and corresponding equilibrium price will be $ 3.5 .