The table below shows data from a weekend farmers' market for boxes of strawberries. The market organiser collected the data before a heatwave. Quantity dem...
Question 1 Report
The table below shows data from a weekend farmers' market for boxes of strawberries. The market organiser collected the data before a heatwave. Quantity demanded and quantity supplied are measured in 100 boxes per day. Each box has the same quality. The organiser wishes to identify the equilibrium price and predict the likely result if sellers charge $6 per box. Some farmers have high irrigation costs and cannot supply many boxes at low prices.
| Price per box ($) | Quantity demanded (100 boxes/day) | Quantity supplied (100 boxes/day) |
|---|---|---|
| 4 | 90 | 30 |
| 5 | 70 | 50 |
| 6 | 50 | 50 |
| 7 | 35 | 65 |
| 8 | 20 | 80 |
(a) Identify the equilibrium price. [1]
(b) Calculate the quantity demanded at a price of $4. Give your answer in boxes per day. [2]
(c) Explain why there is no shortage at the equilibrium price. [2]
(d) Describe the market situation at a price of $7. [2]
(e) Explain how a heatwave that damages the crop would affect supply and equilibrium price. [3]
(f) Explain one reason why the size of this price increase may depend on demand elasticity. [2]
Answer Details
(a) The equilibrium price is $6 per box. [1] At this price, quantity demanded equals quantity supplied.
(b) [2]
\[90\times100=9000\]
Quantity demanded is 9000 boxes per day.
(c) At $6, quantity demanded equals quantity supplied. [2] Each is 50 hundred boxes, which is 5000 boxes per day, so there is no shortage.
(d) At $7 there is excess supply, or a surplus. [2] Supply is 6500 boxes and demand is 3500 boxes, so \(6500-3500=3000\) boxes are unsold.
(e) Heatwave damage reduces crop output. [3] Supply shifts left and, with demand unchanged, equilibrium price rises.
(f) If demand is inelastic, consumers reduce quantity demanded by relatively little when price rises. [2] Therefore the supply reduction can result in a larger increase in price.
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