Question

• 12.

  (Equilibrium) Assume the market for corn is depicted as in the table that appears below.

  1. Complete the table below.

  2. What market pressure occurs when quantity demanded exceeds quantity supplied? Explain.

  3. What market pressure occurs when quantity supplied exceeds quantity demanded? Explain.

  4. What is the equilibrium price?

  5. What could change the equilibrium price?

  6. At each price in the first column of the table below, how much is sold?

     Price per Bushel	Quantity Demanded (millions of bushels)	Quantity Supplied (millions of bushels)	Surplus/Shortage	Will Price Rise or Fall?
     $1.80	320	200
     2.00	300	230
     2.20	270	270
     2.40	230	300
     2.60	200	330
     2.80	180	350

Answer 1

PRICE	QUANTITY DEMANDED	QUANTITY SUPPLIED	SURPLUS/SHORTAGE	WILL PRICE RISE/FALL
1.8	320	200	shortage	price rise
2.00	300	230	shortage	price rise
2.20	270	270	neither shortage nor surplus	neither fall nor rise
2.40	230	300	surplus	price fall
2.60	200	330	surplus	price fall
2.80	180	350	surplus	price fall

a) When quantity demanded exceeds quantity supplied, it means that the consumers are willing to buy more at the given price while the producers are willing to sell less at that particular price as a result of which there is excess demand or shortage in the market. Due to excess demand, the consumers will be willing to buy whatever quantity is available even at a higher price. So, when quantity demanded exceeds quantity supplied, price in the market tends to rise.

b) When quantity supplied exceeds quantity demanded, it means that the producers are willing to sell more at the given price while the consumers are willing to buy less at that particular price as a result of which there is excess supply or surplus in the market. Due to excess supply, the producers will be willing to clear their stock and sell even at a lower price. So, when quantity supplied is greater than quantity demanded, price in the market tends to fall.

c) The equilibrium price is the one where quantity supplied is equal to quantity demanded. This happens at price 2.20 where both quantity demanded and quantity supplied is 270. So, equilibrium price is 2.20.

d) The equilibrium price will change if there are shifts in demand curve or supply curve.