The table below shows weekly demand and supply data for mango smoothies at an indoor market. A new firm has started importing mango pulp, so several stalls ...
Question 1 Report
The table below shows weekly demand and supply data for mango smoothies at an indoor market. A new firm has started importing mango pulp, so several stalls can produce smoothies. Market traders use the data to decide the price they will charge. Fig. 1 is a diagram drawn from the same information. Quantities are measured in cups per week.
| Price per smoothie ($) | Quantity demanded (cups per week) | Quantity supplied (cups per week) |
|---|---|---|
| 3 | 900 | 300 |
| 4 | 700 | 500 |
| 5 | 600 | 600 |
| 6 | 450 | 750 |
| 7 | 300 | 900 |
(a) Identify the equilibrium price and equilibrium quantity from Table 1. [2]
(b) Explain why a price of $7 is unlikely to remain in this market. [3]
(c) What is meant by demand? [1]
(d) Describe how a fall in the price of imported mango pulp is likely to affect the supply curve for smoothies. [2]
Answer Details
(a) Equilibrium occurs where quantity demanded equals quantity supplied. At \(\$5\), both are 600 cups per week. Therefore equilibrium price is \(\$5\) and equilibrium quantity is 600 cups per week. [2]
(b) At \(\$7\), quantity supplied is 900 cups but quantity demanded is only 300 cups. There is excess supply of \(900-300=600\) cups. Traders have unsold smoothies, so they have an incentive to reduce price, moving the market towards equilibrium. [3]
(c) Demand is the quantity consumers are willing and able to buy at different prices. [1]
(d) A fall in the price of imported mango pulp lowers firms' production costs. Producing smoothies becomes more profitable, so supply increases and the supply curve shifts to the right. [2]
Download The App On Google Playstore
Everything you need to excel in your exams
