12. Market equilibrium and disequilibrium The following graph shows the monthly
ID: 1161622 • Letter: 1
Question
12. Market equilibrium and disequilibrium The following graph shows the monthly demand and supply curves in the market for hats. Use the graph input tool to help you answer the following questions. Enter an amount into the Price field to see the quantity demanded and quantity supplied at that price. You will not be graded on any changes you make to this graph. Graph Input Tool Market for Hats 100 90 80 70 Price Dollars per hat) %uantity Supplied 500 210 (Hats) 30 10 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hats) The equilibrium price in this market is S per hat, and the equilibrium quantity is hats bought and sold per month Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices. Shortage or Surplus Amount (Hats) Upward (Dollars per hat) 60 40 Shortage or Surplus Grade It Now Save & Continue Continue without savingExplanation / Answer
The equilibrium price and quantity is where the demand curve meets the supply curve ie the intersection . This can be seen from the graph given . Hence the equilibrium quantity is 250 hats and correspondingly the equilibrium price is 50 dollars per hat .
For finding the shortage and surplus we see what price is given to us
with 60 dollars as price per hat , we see that the supply is more than the demand. Logically also this is true because at higher price the suppliers would want to supply higher but the demand would be less ( inverse demand function )
So at this price there would exist surplus as the supply of hats is more than the demand of hats . ( more units to sell and lesser persons to buy )
The amount of surplus would be the quantity at supply curve - quantity at demand curve.
= 275- 150 = 125
Due to excess suppky , there are less buyers so in order to increase the demand the suppliers will reduce the price . This creates a downward pressure on the prices .
similarly for price 40 dollars per hat
we see that the demand is more than the supply which is natural ie at lower quntities the buyers will demand more but the sellers will supply less so we have a shortage in this case .
The shortage is given by quantity demanded at this price - quantity supplied at this price
= 375- 225 = 150
Due to the shortage in supply we see that the suppliers in order to reduce the demand will increase the price of hats so that the buyers demanding it will reduce . As we increase the price the demand will reduce . So this would create upward pressure on prices ( pressure to reduce the demand )
( Answers have been underlined)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.