Solved Microeconomic Problems: Demand & Supply. Market equilibrium

Theory 2-3: DEMAND AND SUPPLY. MARKET EQUILIBRIUM. MARKET EFFICIENCY AND
PRICE CONTROLS



1. Review Figure 2.4 again. Suppose the price of gasoline is $1.00. Will the quantity
demanded be lower or higher than at the equilibrium price of $1.40 per gallon? Will
the quantity supplied be lower or higher? Is there a shortage or a surplus in the
market? If so, of how much?
Figure 2.4




Solution:
Will the quantity demanded be lower or higher than at the equilibrium price of
$1.40 per gallon?


{Qd=800 =¿ Q > Q
Qeq =600
d eq



Will the quantity supplied be lower or higher?


{ Q s=500
Qeq =600
=¿ Q s<Q eq

Is there a shortage or a surplus in the market? If so, of how much?

At the price $1.00 the market is in a shortage(excess demand).

Qshortage =Qd−Q s=800−500=300 mil . of gallons

, 2. Table 2.8 shows information on the demand and supply for bicycles, where the
quantities of bicycles are measured in thousands.
Table 2.8


Price Qd Qs


$120 50 36

$150 40 40


$180 32 48


$210 28 56


$240 24 70



a. What is the quantity demanded and the quantity supplied at a price of $210?


{Qd =28
Q s=56
, Price=$ 210

b. At what price is the quantity supplied equal to 48,000?


{Price=$
Q =48000
s
180
c. Graph the demand and
supply curve for bicycles.



C1 How can you determine the
equilibrium price and quantity
from the graph?


{Peq
Qeq
=¿ D ∩ S

C2 How can you determine the
equilibrium price and quantity
from the table?
Q s =Qd

C3 What are the equilibrium price and equilibrium quantity?