Question

1. The following table depicts the weekly demand and supply of office visits at a local children’s clinic staffed by four physicians.

Price per visit	Quantity demanded	Quantity supplied
$20	300	150
25	275	175
30	250	200
35	225	225
40	200	250
45	175	275
50	150	300

1. What are the equilibrium price and quantity of office visits per week?
2. If one of the physicians moves to another city, reducing quantity supplied by 25 percent, what are the price and quantity at the new equilibrium?
3. Assuming the original four physicians, if a price ceiling is set at $25 per office visit, how many office visits will be demanded per week? How many will be supplied? Describe the outcome of such a policy.

Answer 1

Solutions :

a. At an equilibrium, Quantity Demanded = Quantity Supplied; and the price at which Quantity Demanded = Quantity Supplied, should be constant.

Therefore, by looking at the schedule, we can confirm that at Price per visit of $35, Demand = Supply at 225 visits.

Therefore, Equilibrium Price = $35

Equilibrium Quantity = 225

b. If the quantity supplied goes down by 25%, there will be no properly defined equilibrium in the market anymore, because at any given price, demand and supply do not equalise.

The closest that we can reach to an equilibrium is at $40 per visit at which the difference between quantity demanded and quantity supplied is 12.50, but this also a case of excess demand and it cannot be considered a proper equilibrium.

The new schedule with quantity supplied column at 25% less than initial quantity supplied is given below in the attached image file :

c. If a price ceiling is set at $25 per visit, then quantity demanded for office visits per week will be 275 while the quantity supplied for office visits per week will be 175.

Due to this policy, there will occur a situation in the market called excess demand, which simply means that the demand at a given price is higher than the quantity supplied. Many people will not be able to get office visits of physician as the outcome of this policy. Or in other words, demand equal to 100 office visits per week will be wasted due to this policy.