Use a supply and demand diagram for cars to illustrate the equilibrium price and quantity. Define...

Use a supply and demand diagram for cars to illustrate the equilibrium price and quantity. Define the equilibrium price and the equilibrium quantity. What happens if the price is above equilibrium? What happens when the price is below equilibrium? Relate the diagram to the law of demand. Relate the diagram to the law of supply. Be sure to refer to the diagram in your discussion.

Solutions

Expert Solution

D curve represents demand for cars whereas S curve is the supply. The intersection gives the market equilibrium. The Quantity Q corresponding to the intersection of demand and supply curves is the equilibrium quantity for cars. The Price P corresponding to the intersection of demand and supply curves is the equilibrium price for cars.

If the price is set above the equilibrium then demand for cars will be lower than that of in equilibrium and supply of cars will be greater than that of in equilibrium. This is because, other things remaining equal demand for good falls with increase in price and supply of goods increases with increase in price. Thus, at P which is now above equilibrium, excess supply or surplus of (Q2-Q1) quantity of cars will be created in the market. If free forces are allowed to work then price will fall to restore the equibrium as the suppliers would not find sufficient buyers at that price. Due to excess supply price will fall till demand and supply gets equalled.

When price is set below the equilibrium, then demand for cars will be higher than that of in equilibrium and supply of cars will be lower than that of in equilibrium. This is because, other things remaining equal demand for good increases with decrease in price and supply of goods falls with increases with fall in price. Thus, at P which is now below the equilibrium, excess demand or shortage of (Q2-Q1) quantity of cars will be created in the market. If free forces are allowed to work then price will increase to restore the equibrium as due to excess demand price will increase till demand and supply gets equalled.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Use supply and demand to graphically illustrate the equilibrium price and quantity of books. b....

Use supply and demand to graphically illustrate the equilibrium price and quantity of books. b. Assume: i. Tastes for reading books increase. ii. The cost of paper to book publishers increases. Illustrate and explain how these two assumptions will affect supply, demand, price and quantity. In your analysis, identify the overall change in price and quantity.

In the scenario below, use a supply and demand diagram to illustrate the effect of the...

In the scenario below, use a supply and demand diagram to illustrate the effect of the given shock on the equilibrium price and quantity in the specified competitive market. Explain whether there is a shift in the demand curve, the supply curve, or neither AirAsia X (AirAsia’s long-haul, low-cost international carrier) defers delivery of 78 Airbus SE A330neo planes. Show the effect of this cancellation on Airbus planes’ demand. I want proper answers with evidence regarding the effects on AirAsia...

In a supply-and-demand diagram, show how a tax on car buyers of $1000 per car affects the quantity of cars sold and the price of cars.

In a supply-and-demand diagram, show how a tax on car buyers of $1000 per car affects the quantity of cars sold and the price of cars. In another diagram, show how a tax on car sellers of $1000 per car affects the quantity of cars sold and the price of cars. In both diagrams, show the change in the price paid by car buyers and the change in the price received by car sellers.

If both demand and supply increase, then the equilibrium price A) and equilibrium quantity increases. B)...

If both demand and supply increase, then the equilibrium price A) and equilibrium quantity increases. B) falls but the equilibrium quantity increases. C) could either rise or fall, but the equilibrium quantity increases. D) rises, and the equilibrium quantity could either increase or decrease. E) falls, and the equilibrium quantity could either increase or decrease.

Draw a supply and demand diagram with a perfectly elastic Supply. a- Determine the equilibrium price...

Draw a supply and demand diagram with a perfectly elastic Supply. a- Determine the equilibrium price and quantity on your graph. Label the relevant area of the graph with letters and determine consumer surplus, producer surplus and total surplus of the market at the equilibrium. b- Show that any deviation from the equilibrium results in a decrease in total surplus. c- Show the change in consumers, producers, and total surplus of the market as a result of an upward shift...

1. Suppose there is a decrease in the price of gasoline. With the aid of a demandand-supply diagram, explain how this will affect the equilibrium price and quantity in the market of gasoline cars.

1. Suppose there is a decrease in the price of gasoline. With the aid of a demandand-supply diagram, explain how this will affect the equilibrium price and quantity in the market of gasoline cars. 2. Suppose the market for Japanese grapes is represented by: Supply: Q = 400 + P2 Demand: Q = 1000 – 5P2 i) Find the market equilibrium price and quantity. ii) Calculate the price elasticity of demand when the market is at the equilibrium. Show your...

Use short-run supply demand analysis to indicate how equilibrium price and quantity will change if the...

Use short-run supply demand analysis to indicate how equilibrium price and quantity will change if the following changes occur in the economy. Draw a supply and demand curve for each answer and provide a brief one sentence explanation. c) Immigration policy leads to a sharp reduction in the in-migration of Mexican workers. What happens to the market for low-wage labor in Los Angeles?

For each of the following scenarios, use a supply and demand diagram to illustrate the effect...

For each of the following scenarios, use a supply and demand diagram to illustrate the effect of the given shock on the equilibrium price and quantity in the specified competitive market. Explain whether there is a shift in the demand curve, the supply curve, or neither. (a) (5 points) An unexpected temporary heat wave hits the East Coast. Show the effect in the ice cream market in New England. (b) (5 points) The government introduces a tax on ice cream...

Let D = demand, S = supply, P = equilibrium price, and Q = equilibrium quantity....

Let D = demand, S = supply, P = equilibrium price, and Q = equilibrium quantity. What happens in the market for electric vehicles if the government offers incentives to manufacturers to produce more electric vehicles? Provide a graphical representation to your answer in question 5. The graph can either be hand-drawn or copied from the textbook or other online sources.

Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price,...

Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events. a. The market for steel in the United States: Fuel efficiency regulations have reduced the use of steel in automobile production and increased the use of lighter materials such as aluminum AND import restrictions limit the amount of steel that can be imported into the United States. b. The market for international airline tickets:...

Subjects