Question

1. The following table is a demand and supply schedule of rental gym lockers across the state.

Price per rental, $	Quantity demanded	Quantity supplied
2	1,150	200
2.5	1,100	500
3	1,050	800
3.5	1,000	1,000
4	900	1,100
4.5	800	1,200

1. At what price(s) there is a rental lockers’ market equilibrium? List all.

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2. At what price(s) there is a shortage of rental lockers? List all.

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3. At what price(s) there is a surplus of rental lockers? List all.

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4. Consider your answer in part b). What market/economic forces and how would bring the rental gym lockers market back to equilibrium? Explain. (hint: make sure to explain the effect of this market force either on D and S or on Qd and Qs. And be very specific in explaining by how much exactly the market force has to change)

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5. Consider your answer in part c). What market/economic forces and how would bring rental gym lockers market back to equilibrium? Explain. (hint: make sure to explain the effect of this market force either on D and S or on Qd and Qs. And be very specific in explaining by how much exactly the market force has to change)

            Answer:

Answer 1

a) There is a rental lockers’ market equilibrium when the quantity demanded equals quantity supplied. This happens at a single price at $3.50.

b) Before the equilibrium price of $3.50, that is, from $2.00 to $3.50, quantity demanded is greater than quantity supplied which implies that there is a shortage of rental lockers.

c) After the equilibrium price of $3.50, that is, from $3.50 to $4.50, quantity demanded is smaller than quantity supplied which implies that there is a surplus of rental lockers.

d) Since there is a shortage, quantity demanded is greater than quantity supplied. This would result in competition among buyers which would bid the price up. As price increases, quantity demanded falls and quantity supplied rises, gradually eliminating the shortage. This competition among buyers would bring the rental gym lockers market back to equilibrium

e) Since there is a surplus, quantity demanded is less than quantity supplied. This would result in competition among sellers which would bid the price down. As price decreases, quantity demanded rises and quantity supplied falls, gradually eliminating the surplus. This competition among sellers would bring the rental gym lockers market back to equilibrium