Question

The following table sets the demand and the supply schedules for flower bouquet on a normal            

weekend.

                                                                                                       16 marks

                                     

Price of a flower bouquet	Quantity demanded                                Quantity supplied (Flower bouquet per week)
7	90	30
9	80	35
12	50	50
19	40	70
24	25	80

1. What is the market equilibrium price and quantity? Why?
2. Describe the situation in the flower market if the price of a flower bouquet is $24. How will the price adjust?
3. Describe the situation in the flower market if the price of a flower bouquet is $7. How will the price adjust?

4. Flower sellers know that Valentine day is next week-end and they expect the price to be higher, so they withheld 30 flower bouquet from the market this week end. What is the equilibrium price this week end? Complete the table to show your result.

Price of a flower bouquet	Quantity demanded                                New Quantity supplied (Flower bouquet week)
7	90
9	80
12	50
15	40
20	25

Answer 1

Price $	Quantity demanded	Quantity supplied
7	90	30
9	80	35
12	50	50
19	40	70
24	25	90
i)
Market equilibrium price is $12, and quantity is 50, as quantity demanded equals quantity supplied
ii)
When price is 24, there is surplus as quantity supplied is 90 and quantity demanded is 25, so there is excess supply of 90-25=65.
Price will fall.
There will be downward pressure as supply will increase and demand will fall.
iii)
When price is 7, there is surplus as quantity supplied is 30 and quantity demanded is 90, so there is excess demand of 90-30=60.
Price will rise
There will be upward pressure as supply will fall and demand will increase.
Price $		Quantity supplied	New supply( quantity will decrease by 30 at each price level)
7		30	0
9		35	5
12		50	20
15		70	40
20		90	60