Question

The data in the table above represent the market demand and supply for strawberries over a range of prices.

Price (cents)	Quantity Demanded (million tins/year)	Quantity Supplied   (million tins/year)
10	90	30
20	80	50
30	70	70
40	60	90
50	50	110

1. Plot on a single diagram the demand and supply curve. (4 marks)

2. What would be the excess demand or supply if price were set at 10 cent? (4 marks)

3. What would be the excess demand or supply if price were set at 40 cent? (4 marks)

4. Define the equilibrium of a market. Find the equilibrium price and quantity. (4 marks)

5. Suppose that an increase in consumers’ income results in an increase of strawberries’ demand. The demand of strawberries rises by 30 million tins/year at each price level. Find the new equilibrium price and quantity. (4 marks) T

Answer 1

Answer

1.  

Demand and Supply Curves of Strawberry Tins 60 50 50,50 110,50 60,40 40 90, 40 PRICE PRICE 30 70,80 20 50, 20 80, 20 90, 10 10 30, 10 0 o 10 20 30 40 80 90 100 110 120 50 60 70 QUANTITY OF TINS IN MILLIONS Supply Demand

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2. Excess demand for tin = 60 millions per year.

From the table, we see that if price were set at 10 cent, the quantity demanded for tins is 90 millions per year and the quantity supplied of tins is 30 millions per year.

$\therefore$ The excess demand of tins = 90 millions - 30 millions = 60 millions per year.

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3. Excess supply of tin = 60 millions per year.

From the table, we see that if price were set at 40 cent, the quantity demanded for tins is 60 millions per year and the quantity supplied of tins is 90 millions per year.

$\therefore$ The excess supply of tins = 90 millions - 30 millions = 60 millions per year.

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4. Equilibrium price = 30 cents ; Equilibrium quantity = 70 million strawberry tins per year.

The market equilibrium is attained when at a price both the quantity demanded and quantity supplied are equal.

Demand and Supply Curves of Tins 60 50 50, 50 10,50 60, 40 40 90, 40 PRICE 30 270, 90 20 50, 20 80, 20 90, 10 10 30, 10 0 0 10 20 30 40 50 60 70 80 90 100 110 120 QUANTITY OF TINS IN MILLIONS - Supply Demand

From the above figure, we see that at the price of 30 cents, both the quantity demanded and quantity supplied of strawberry tins are 70 millions per year.

$\therefore$The equilibrium price = 30 cents ; equilibrium quantity = 70 million strawberry tins per year.

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5. New equilibrium price = 40 cents ; New equilibrium quantity = 90 million strawberry tins per year.

Prices	Quantity Demanded (Million Tins per Year)	New quantity Demanded (Million Tins per Year)	Quantity Supplied (Million Tins per Year)
10	90	120	30
20	80	110	50
30	70	100	70
40	60	90	90
50	50	80	110

From the above table, we see that at the price of 40 cents, both the quantity demanded and quantity supplied of strawberry tins are 90 millions per year.

$\therefore$The new equilibrium price = 40 cents ; new equilibrium quantity = 90 million strawberry tins per year.

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