Question

The demand and supply curves for the market of grains in Idaho is given below. Use the graph to answer the question that follows. 10 demand Supply 9 Policy price 2 4 68 1012 14 Quantity of Grains in (tons) a. (0.5 pt) If the current market price of grain its at $7, thinking of market equilibrium, what would you expect in this market (shortage or surplus)?. b. (0.5pt) How will the problem identified above be solved in order for the market to return to a market equilibrium?

Answer 1

a). The equilibrium occurs where the quantity demanded equals the quantity supplied, here the market price is below the equilibrium at this price the quantity demanded outweighs the quantity supplied and this is a shortage of the good. The opposite will happen when the price is above the equilibrium then the quantity supplied will be more than the quantity demanded and that is a surplus.

Ans: Shortage.

b). This problem is solved by an increase in the price, when there is a excess demand the producers will raise their prices and now some of the consumers could not be able to afford the goods and they will not demand the product by this way the problem of excess demand is solved.