Question

QUESTION

1. What does a change in the quantity demand / supply imply and what is its difference from a change in demand / supply?

2. Consider the table below and answer the following questions

Price of A	Quantity Demanded for A	Quantity Supplied of A
10	32	4
20	28	7
30	24	10
40	20	13
50	16	16
60	12	19
70	8	22

3. Draw the supply and demand curves

4. Why does supply curve have an upward slope and demand curve have a downward slope? Explain.

5. Determine Equilibrium Price and Quantity for Good A

6. Determine the amount of surpluses and shortages at P=30 and P=60

Answer 1

1. When we talk about the change in demand or supply, we usually believe that there are changes in factors that affect the demand, leaving the own price unchanged. In such cases, demand and supply will experience a shift either to the left (unfavorable change in factors) or to the right (favorable changes in factors). These are then termed as 'increase or decrease' in demand or supply.

In contrast, changes in quantity demanded or supplied are brought about by the change in the own price, leaving all other factors unchanged, called ceteris paribus. Here the original demand and supply curve experience a movement along them in the form of 'expansion or contraction'.

3. Below is a graph for the supply and demand curves

4. Supply curve have an upward slope because suppliers are more willing to sell when the price they receive for the product is increased. A higher price means higher revenue (and a higher profit) for suppliers. Demand curve has a downward slope because consumers buy more when the price of a product falls. They will be willing to maximize their consumer surplus and when the price falls, they can buy more from the same maximum willingness to pay. Hence when price falls, quantity demanded rises.

5. The price at which both of them settle is called the market clearing price because it persuades both the seller and the buyer to conduct the market transaction. On graph, it is represented by a point at which the demand and supply curves intersect. This price also determines the optimum quantity to be traded. Here equilibrium price is $50 and equilibrium quantity is 16 units

6.When price is $30, Qd is 24 units and Qs is 10 units. Hence there is a shortage of 24 - 10 = 14 units. When price is $60, Qd is 12 units and Qs is 19 units. Hence there is a surplus of 19 - 12 = 7 units.