Question

4. Using the following demand and supply schedules:

Price Quantity Supplied                         Quantity Demanded

$4                        50                                                  200

$5                        65                                                   140

$6                        85                                                    85

$7                       110                                                    50

$8                       140                                                   20

a. Plot the supply and demand curves in a graph. Indicate the point of equilibrium on the graph.

b. If the government imposed a price ceiling of $5 for this product, what would be the impact in this market? Explain.

c. if the government imposed a price floor of $5 for this product, what would be the impact on this market? explain.

2. Redraw the market from question 1. In this diagram, show effect of the government issuing a public safety warning about the potentially dangerous impacts from the use of this product. Be sure to indicate the new equilibrium.

Please help me on a, b and c and question 2

Answer 1

a. The supply and demand curves are plotted on the graph from the above table.

From the graph we can see that the equilibrium is at the intersection of the demand and supply curves where Price =$6 and quantity demanded = quantity supplied = 85 units.

b. If government imposes a price ceiling of $5 for this product, than at this price there will be demand greater than supply and hence a shortage of (140-65=75) 75 units.

c. A price floor of $5 will also have the same impact.

2. If government issues a public safety warning about the potentially dangerous impacts from the use of this product. Than the people will avoid consuming it and hence the demand will decrease, the whole demand curve will shift to the down-left side which will intersect the previous supply curve at a lower point.

Hence new equilibrium will be at lower price and lower quantity, so we can draw the graph accordingly.