Question

a. Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity. Price Quantity Demanded Per Month 6,000 8,000 Quantity Supplied Per Month 10,000 8,000 S5 $4

Answer 1

Part (a)

E is the equilibrium point.

Demand Vs. Supply --Demand Supply 16,000 14,000 12,000 10,000 Quantity E = (4, 8000) 8,000 6,000 4,000 2,000 0 / 2 4 5 6 3 Price ($)

Part (b)

Please read the graph on both the axes.

At equilibrium, price = $ 4 and Quantity demanded = Quantity Supplied = 8,000

Part (c)

The green line shows the line corresponding to price = $ 5.

Demand Vs. Supply --Demand Supply 16,000 14,000 12,000 10,000 S = (5, 10000) Quantity E = (4, 8000) D = (5, 6000) 8,000 6,000 4,000 2,000 0 1 2 3 Price ($) 4

At this price, the demand is given by point D while supply is given by point S. Quantity supplied > Quantity demanded. This is a situation of over supply. Because of over supply, the prices will decrease. Reduction in price will lead to lower supply. So, the point S will slide down the supply line (orange line). As prices decrease the demand will go up. So, the point D will rise up the demand curve (blue line). Eventually both the points will meet at equilibrium E, where quantity demanded will be same as quantity supplied at a price of $ 4. Hence, the situation will converge to the equilibrium point.

Part (d)

Demand Vs. Supply --Demand --Supply 1D = (2, 12000) Quantity 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 E = (4, 8000) S = (2, 4000) 0 1 3 Price ($) 4 5 6

At this price, the demand is given by point D while supply is given by point S. Quantity supplied < Quantity demanded. This is a situation of under supply. Because of under supply, the prices will increase. Increase in price will lead to increase in supply. So, the point S will slide up the supply line (orange line). As prices increases the demand will go down. So, the point D will slide down the demand curve (blue line). Eventually both the points will meet at equilibrium E, where quantity demanded will be same as quantity supplied at a price of $ 4. Hence, the situation will converge to the equilibrium point.