Use the schedule to answer the follow-ing questions: Price per annum Quantity Demanded Quantity Supplied per week 5 500 60 6 400 150 7 300 300 8 250 400 9 1...
Question 1 Report
Use the schedule to answer the follow-ing questions:
| Price per annum | Quantity Demanded | Quantity Supplied per week |
| 5 | 500 | 60 |
| 6 | 400 | 150 |
| 7 | 300 | 300 |
| 8 | 250 | 400 |
| 9 | 150 | 500 |
| 10 | 50 | 600 |
(a) At what price and quantity does the market attain equilibrium and why?
(b) At what prices does the market exhibit excess demand and by how many units?
(c) At what prices does the market exhibit excess supply and by how many units?
(d) At what price will the supplier be willing to sell most? What quantity will he be willing to sell at that
Answer Details
(a) Equilibrium occurs where quantity demanded equals quantity supplied. From the schedule this is at a price of 7, where \(Q_d=Q_s=300\) units. At this price the plans of buyers and sellers exactly match, so there is neither shortage nor surplus.
(b) Excess demand occurs at prices below 7, where \(Q_d>Q_s\):
- At price 5: \(500-60=440\) units of excess demand.
- At price 6: \(400-150=250\) units of excess demand.
(c) Excess supply occurs at prices above 7, where \(Q_s>Q_d\):
- At price 8: \(400-250=150\) units of excess supply.
- At price 9: \(500-150=350\) units of excess supply.
- At price 10: \(600-50=550\) units of excess supply.
(d) The supplier is willing to sell most at the highest price, 10, where he is willing to supply 600 units. This reflects the law of supply, that a higher price encourages a larger quantity supplied.
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