Question

• The new market equilibrium price and the new market equilibrium quantity is as follows

  • Dx = 140 - 4p

  • Sx = 120 + p

• At which of the following price for packages of herbal tea:

  • P=$10, $15, $8 is there a surplus, a shortage, or at equilibrium? Use a graph to help explain your answer

    • My thought process is that all these prices will result in a surplus because it will be greater than the MCP.

Answer 1

The equilibrium of market will be there at where market demand is equal to market supply,

Dx=Sx

140-4p=120+p

20=5p

p=4

The market will be equilibrium at price 4

And the equilibrium quantity 124(120+4)

In a surplus ,at given price consumer demanding less than what producer want to sell.

In shortage,at given price consumer demanding more than what producer want to sell.

Price above equilibrium price create surplus in market. Price below equilibrium price creates shortage in market.

All price (10,15,8) are above equilibrium price then there will be market surplus .

the demand curve intersect supply curve at equilibrium with Pe=4 and Qe=124,

As you can see at price 10,8,15 there is gap between the demand curve and supply curve and also supply curve is rightward to demand curve shows there is surplus at price 10,8,15.

The reason behind of this all this prices are higher than equilibrium price . When price increases there is contraction in demand and expansion in supply ,which creates surplus.as price go up and up the surplus increases.