Question

1. Using the following data: Price in $ Quantity demanded Quantity supplied 20 a) Find equilibrium P, Q. b) On one graph, graph both the demand and supply curves. c) If price was fixed at $10, what would be the result? d) If quantity supplied increases by 5 at every price level due to better technology and quantity demanded decreases by 5 at every price level due to lower incomes, what would be the new equilibrium P, Q?

Answer 1

a) Equilibrium quantity = 12

Equilibrium price = 25

b)

c) When P=10

35 30 E 25 20 QD 15 QS 10 0 15 0 10 20 25

Quantity demanded = 18 and Quantity supplied = 3

so, there would be a shortage or an excess demand of 18-3 =15 units in the market

d) New demand and supply schedule as demand decreases by 5 and supply increases by 5

P	QD	QS
5	15	5
10	13	8
15	11	11
20	9	14
25	7	17
30	5	20

New equilibrium quantity = 11

New equilibrium price = 15

35 30 25 20 QD 15 QS 10 5 10 15 0 5 10 20 25