Question

Price per bushel	Quantity Demanded (bushels)	Quantity Supplied (bushels)
US$2	40,000	0
4	36,000	4,000
6	30,000	8,000
8	24,000	16,000
10	20,000	20,000
12	18,000	28,000
14	12,000	36,000
16	6,000	40,000

2. Refer to Table 1-2. The table contains information about the wheat market. Use the table to answer the following questions.

a. What are the equilibrium price and quantity of wheat?

b. Suppose the prevailing price is US$6 per bushel. Is there a shortage or a surplus in the market?

c. What is the quantity of the shortage or surplus?

d. How many bushels will be sold if the market price is US$6 per bushel?

e. If the market price is US$6 per bushel, what must happen to restore equilibrium in the market?

f. At what price will suppliers be able to sell 36,000 bushels of wheat?

g. Suppose the market price is US$14 per bushel. Is there a shortage or a surplus in the market?

h. What is the quantity of the shortage or surplus?

i. How many bushels will be sold if the market price is US$14 per bushel?

j. If the market price is US$14 per bushel, what must happen to restore equilibrium in the market?

Table 1-2 Quantity Quantity Demanded supplied Price per bushel (bushels) bushels) US$2 40,000 10 36,000 4,000 4 6 8,000 30,000 8 24,000 16,000 10 20,000 20,000 18,000 28,000 12 14 12,000 36,000 6,000 16 40,000

Answer 1

a) Equilibrium is where QD=QS

Equilibrium price = 10

Equilibrium quantity = 20000

b) At P =6

QD=30000

QS=8000

So, there is a shortage

c) Shortage = 30000-8000 = 22000

d) Bushels sold = quantity supplied = 8000

e) The price must rise so that the quantity supplied increases

f) At P = 4

g) When P =14, QD = 12000, QS = 36000

So, there is a surplus in the market

h) Surplus = 36000-12000 = 24000

i) Quantity sold = quantity demanded = 12000

j) The price must fall so that the demand increases