Question

VIII. a. Fill in the appropriate numerical values in the table below for the surplus or shortage of baseball caps in the fourth column and the effect on price in the fifth column. Market Demand and Supply Schedules for Baseball Caps Price ($ per cap) Quantity demand-ed (caps per week) Quantity supplied (caps per week) Surplus (+) or Shortage (-) Effect on Price (up or down) $25 8000 14000 $20 9000 12000 $15 10000 10000 $10 11000 8000 $5 12000 6000 b. Draw a graph showing the demand and supply curves D0 and S. Plot only the endpoints of the two curves for a total of four points. c. Identify the equilibrium quantity and price. Why could no other price represent the equilib-rium value? d. Suppose the demand schedule in this market changes so that 11 000 caps are demanded at a price of $25, 12 000 are demanded at $20, 13 000 at $15, 14 000 at $10, and 15 000 at $5. Is this an increase or decrease in demand? How would this change be shown on a graph? e. Create a new table like the one in part a to show the demand and supply schedules in this market after the change in demand and draw the new demand curve D1 in your graph. Plot only the endpoints of the new curve. Identify the new equilibrium price.

Answer 1

a).

Consider the following fig where the demand and the supply schedule at each “P” are given.

So, here we can see that when “Qd > Qs”, => it’s the situation of shortage. If, “Qd < Qs”, => it’s the situation of surplus and for “Qd = Qs”, => it’s the situation of neither shortage nor surplus, => it’s the equilibrium situation.

b).

Consider the above fig. So, here “D0” be the downward sloping demand and “S0” be the upward supply curve and at “E” demand and supply cut each other, => it’s the situation of equilibrium.

c).

Now, the equilibrium “P” and quantity demanded and supplied are given by, “P=15” and “Qd=Qs=10,000”. Now, “P=15” be the only equilibrium price because only at this price the “quantity demand” is exactly equal to “quantity supplied”.

d).

So, here the demand increase by “3000 caps” for each “P”, => it’s the increase in demand. So, here the demand curve will shift right side by the amount “3,000 caps” for each “P”.

e)

Consider the following table and fig.

So, here the new equilibrium is given by “E1” the intersection between “D1” and “S0”. So, here the equilibrium “P” and quantity demanded and supplied are given by, “P=20” and “Qd=Qs=12,000”.