Question

EC 2113 - Principles of Macroeconomics Professor: Dr. Heriberto Gonzalez Table 1 Price Idollars Quantity Quantity per pound demanded supplied of wheat 4 16,000 4000 8 32.000 3.000 12 28.000 12.000 16 24,000 16.000 20 20.000 20.000 24 16.000 24.000 12000 32 36 0 00 4,000 36.000 Use Table 1 to answer following questions. Draw a supply-demand graph for wheat. Label all parts of the graph, including the equilibrium price and quantity. No label, no credit a) If the price of wheat is $16. a. In your graph, identify the quantity supplied at $16. Label it as as b. in your graph, identify the quantity demanded at $16. Label it as Od. c. At $16, what is greater the quantity demanded or the quantity supplied? What is this situation called, shortage or surplus? d. Did any of the determinants of demand or supply change? If so, which one? if supply and/or demand shift, a NEW equilibrium will arise; if no shift in supply and/or demand is observed, then the equilibrium will be restore by adjusting the price e. If the price is $16, what is going to happen? Explain

Answer 1

The information from table 1 is drawn in the graph below. Pe and Qe are equilibrium price and quantity. Pe = 20 and Qe = 20000.

Supply Price Equilibrium Demand 5000 10000 15000 25000 30000 35000 40000 20000 Quantity Qe

1. At Price = 16, quantity supplied is given by Qs in the graph. Qs = 16000.

Supply Price Equilibrium Demand O 5000 10000 15000 25000 30000 35000 40000 20000 Quantity Qe

b) At Price = 16, quantity demanded is given by Qd in the graph. Qd = 24000.

Supply Price Equilibrium Demand O 5000 10000 15000 29000 30000 35000 40000 20000 Quantity Qe

c) At price 16, quantity demanded greater than quantity supplied. This situation is called shortage as there is shortage of supply given demand.

d) Change in price does not shift demand or supply. It leads to movement along the curve. Price, the determinant of demand and supply changed here.

e) If price = 16, there will be shortage in the market. More people would want to buy than is available. People will be willing to pay more to get the good. The price will rise. The adjustment will continue till demand equals supply. Here, price will rise till 20, as there demand equals supply.

two ways of looking at GDP are - expenditure approach and income approach. Both approaches give the same result.