Question
In: Economics
12. Consider the following table which shows the demand and supply of ice-cream. Price Quantity demanded...
12. Consider the following table which shows the demand and supply of ice-cream.
|
Price |
Quantity demanded |
Quantity supplied |
|
$2.5 |
75,000 |
45,000 |
|
$3.5 |
70,000 |
50,000 |
|
$4.5 |
65,000 |
55,000 |
|
$5.5 |
60,000 |
60,000 |
|
$6.5 |
55,000 |
65,000 |
(a) What are the equilibrium price and equilibrium quantity?
(b) Suppose quantity supplied increases by 20,000 for every price level. Determine the new equilibrium price and new equilibrium quantity.
(c) This summer is unusually hot. How will this affect the supply or demand for ice-cream? Will the equilibrium price rise or fall?
Solutions
Expert Solution
A.
Equilibrium quantity :60,000.
Equilibrium price :5.5.
Explanation :
Equilibrium is when quantity demanded and quantity supplied are equal. Here at price 5.5 quantity demanded and supplied are equal.
B.
New equilibrium price: 3.5
New Equilibrium quantity : 70,000.
Explanation :
When quantity supplied increases by 20,000.
Add 20,000 in all level of quantity supplied.
So at price 3.5 when we adf quantity supplied by 20,000. Total quantity supplied will be equal to 50,000+20,000=70,000.
And also quantity demanded is 70,000. So equilibrium quantity will 70,000 and price will be 3.5.
C.
Demand will increase. Demand will shift to the right.
Equilibrium quantity will increase and price will also increase.
Explanation :
When there is hot summer, people will demand more ice-cream. So demand will shift to the right along the supply curve. So equilibrium quantity will increase and also price will increase.
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