Question

Assume the following information for the demand and supply schedules for
coffee.
Price Quantity demanded (thousands

of kg)

Quantity supplied (thousands of
kg)
6 3 9
5 4 7
4 5 5
3 6 3
2 7 1

(a) Graph the corresponding demand and supply curves and identify the equilibrium price and quantity
of coffee? (2)
(b) What do you mean by shortage and surplus? (2)
(c) At the price of $6, would there be a shortage or a surplus and how large would it be? (2)
(d) If the demand for coffee decreased by 3000 kg at every price, would the equilibrium price still remain
the same? If yes why? If no, what would be new equilibrium price and would it be shortage or surplus at
the old equilibrium price? (3)
(e) Using the original amounts of supply and demand, if the supply for coffee increased by 6000 kg at
every price, would there be a shortage or a surplus and how much would it be at the price of $2? (3)
(f) Due to a storm coffee crop got destroyed. How would it impact the equilibrium price, quantity
supplied, and quantity demanded? Explain graphically and present an event analysis.

Answer 1