Question

The Following table shows the demand and supply schedule for pineapple fruits

Quantity Demand kg price($) Quantity Supplied in kg

26 5 4

23 10 9

18 15 14

14 20 18

9 25 23

4 30 26

    

a.     Plot the supply and demand curves.

b.     Identify the equilibrium price and quantity  

c.     What will happen if government passed a law that no seller should sell bellow a price of $25.

d.     Explain the market situation at a price of 5.

e.     If quantity demanded rises by 50 % at each and every price, what will be the new equilibrium price and quantity? Indicate this change on the original graph above.

f.      List factors that would have caused a change in question E above.

Answer 1

a)

b) The equilibrium price is $17.50 and quantity is 16 Kgs.

c) If government passed a law that no seller should sell bellow a price of $25, at this price the quantity demanded is 9 Kg and quantity supplied is 23 Kg. So, there will be a surplus of 14 Kg. Thus, there will be a downward pressure on price.

d) At a price of $5, the quantity demanded is 26 Kg and quantity supplied is 4 Kg. So, there will be a shortage of 22 Kg. Thus, there will be a upward pressure on price.

e)

The new equilibrium price $21 and quantity is 19.2 Kg.

f) The followings are the factors that have caused a change in demand:

• The price of the related goods ,i.e., the price of substitute goods or price of complementary goods: An increase in price of related goods leads to increase in demand.
• The income of the consumers: An increase in the income of the consumers leads to increase in demand.
• The taste and preferences of the consumers: An increase in taste and preferences of the consumers towards the good leads to increase in demand.
• Population: An increase in population can lead to increase in demand for the good.
• Advertisement expenditure by the company: An increase in the advertisement expenditure by the company can lead to increase in demand for the good.