Look at the following demand and supply schedules for the new Pepsi product just being introduced....

Look at the following demand and supply schedules for the new Pepsi product just being introduced. We will assume that the units are case lots bought by an individual family within the first six months of introduction.

price	quantity demanded	quantity supplied
10	10	50
8	20	40
6	30	30
4	40	20
2	50	10

1. If the price of Crystal Pepsi were $2.00 per case, how many cases would be offered for sale?

2. If the price of Crystal Pepsi were $2.00 per case, how many cases would people be willing to buy?

3. How many cases would actually be traded (go through the market) if the price were left at this $2.00 level?

4. Would this constitute a surplus or a shortage?

5. How much of a surplus or shortage would there be?

6. If the market process were allowed to work, what would you expect to happen to the price of Crystal Pepsi?

7. If the price of Crystal Pepsi rose to $8.00 per case, how many cases would be offered for sale?

8. If the price of Crystal Pepsi rose to $8.00 per case, how many cases would be demanded by families.

9. If the price remained at $8.00 per case, how many cases would actually be traded (go through the market)

10. Would this constitute a surplus or a shortage?

11. How much of a surplus or shortage would there be?

12. If the market process were allowed to work, what would you expect to happen to the price of Crystal Pepsi?

Expert Solution

If the price of Crystal Pepsi were $2.00 per case, then 10 cases would be offered for sale.
If the price of Crystal Pepsi were $2.00 per case, then 50 cases would people be willing to buy.
10 cases would actually be traded (go through the market) if the price were left at this $2.00 level.
Since demand is greater than supply, this, constitute a shortage.
Shortage = Demand –supply = 50 – 10 = 40
If the market process were allowed to work, then price of Crystal Pepsi will increase.
If the price of Crystal Pepsi rose to $8.00 per case, then 40 cases would be offered for sale.
If the price of Crystal Pepsi rose to $8.00 per case, then 20 cases would be demanded by families.
If the price remained at $8.00 per case, 20 cases would actually be traded.
Since supply is greater than demand, this constitutes a surplus.
Surplus = supply – demand = 40 -20 =20
If the market process were allowed to work, then price of Crystal Pepsi will decrease.

Rahul Sunny answered 10 months ago

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