Chapter 4, Problem 25P

To determine

(a)

Assume the following information for demand and supply curve for good Z

Demand	Demand	Supply	Supply
Price	Quantity demanded	Price	Quantity supplied
$\$10$	$10$	$\$1$	$10$
$\$9$	$20$	$\$2$	$15$
$\$8$	$30$	$\$3$	$20$
$\$7$	$40$	$\$4$	$25$
$\$6$	$50$	$\$5$	$30$
$\$5$	$60$	$\$6$	$35$
$\$4$	$70$	$\$7$	$40$
$\$3$	$80$	$\$8$	$45$
$\$2$	$90$	$\$9$	$50$
$\$1$	$100$	$\$10$	$55$

Illustrate demand and supply curve.

Answer to Problem 25P

Following graph represents the demand and supply curve of good Z

Explanation of Solution

The above graph represents the supply and demand curve of good Z. The intersecting point is the equilibrium point at which the demand for the products is equal to the supply of the products. The upward movement of the supply curve represents that with an increase in the price of the product the supplier will increase the supply whereas the downwards movement of the demand curve represents a decrease in demand of the product with an increase in the price of the product.

Economics Concept Introduction

Introduction:

Demand and supply curve represents relationship between the quantity of product a supplier supplies in the market and quantity of product consumers demands. The point where supply and demand curve meets is referred to as equilibrium price. This is the price at which supplier agrees to supply the commodities and consumers agrees to buy at that price point.

To determine

(b)

Assume the following information for demand and supply curve for good Z

Demand	Demand	Supply	Supply
Price	Quantity demanded	Price	Quantity supplied
$\$10$	$10$	$\$1$	$10$
$\$9$	$20$	$\$2$	$15$
$\$8$	$30$	$\$3$	$20$
$\$7$	$40$	$\$4$	$25$
$\$6$	$50$	$\$5$	$30$
$\$5$	$60$	$\$6$	$35$
$\$4$	$70$	$\$7$	$40$
$\$3$	$80$	$\$8$	$45$
$\$2$	$90$	$\$9$	$50$
$\$1$	$100$	$\$10$	$55$

Determine the equilibrium price and the quantity traded

Answer to Problem 25P

In the given data the equilibrium price is $\$7$ and the quantity traded is $40$ units

Explanation of Solution

In the given table, one can observe that at price $\$7$ the amount of quantity supplied is equal to amount of quantity demanded that is $40$

Therefore, the equilibrium price is $\$7$ and the quantity traded is $40$ units

Economics Concept Introduction

Introduction:

Equilibrium price is the price at which the amount of quantity supplied is equal to the amount of quantity demanded, it is the price at which both the supplier and consumer is ready to trade the goods.

The amount of quantity traded in between in the suppliers and consumers are the equilibrium quantity traded.

To determine

(c)

Assume the following information for demand and supply curve for good Z

Demand	Demand	Supply	Supply
Price	Quantity demanded	Price	Quantity supplied
$\$10$	$10$	$\$1$	$10$
$\$9$	$20$	$\$2$	$15$
$\$8$	$30$	$\$3$	$20$
$\$7$	$40$	$\$4$	$25$
$\$6$	$50$	$\$5$	$30$
$\$5$	$60$	$\$6$	$35$
$\$4$	$70$	$\$7$	$40$
$\$3$	$80$	$\$8$	$45$
$\$2$	$90$	$\$9$	$50$
$\$1$	$100$	$\$10$	$55$

Determine whether it is surplus or shortage at price $\$9$

Answer to Problem 25P

At price $\$9$ there is surplus of good Z by $30$ units.

Explanation of Solution

In the given table at price, $\$9$ quantity supplied is $50$ units and quantity demanded is $20$ units.

Since the quantity supplied is more than quantity demanded, therefore there is surplus at price $\$9$.

To calculate surplus

  $\begin{array}{c}\text{Surplus}=\text{Qunatity}\text{Supplied}-\text{Qunatity}\text{Demanded}\\ =50-30\\ =20\end{array}$

Thus the surplus at price $\$9$ is $20$ units

Economics Concept Introduction

Introduction:

Surplus occurs when the quantity supplied by the supplier exceeds the quantity demanded in the market.

Shortage occurs when the quantity demanded by the consumers exceeds the quantity supplied by the supplier in the market.

To determine

(d)

Assume the following information for demand and supply curve for good Z

Demand	Demand	Supply	Supply
Price	Quantity demanded	Price	Quantity supplied
$\$10$	$10$	$\$1$	$10$
$\$9$	$20$	$\$2$	$15$
$\$8$	$30$	$\$3$	$20$
$\$7$	$40$	$\$4$	$25$
$\$6$	$50$	$\$5$	$30$
$\$5$	$60$	$\$6$	$35$
$\$4$	$70$	$\$7$	$40$
$\$3$	$80$	$\$8$	$45$
$\$2$	$90$	$\$9$	$50$
$\$1$	$100$	$\$10$	$55$

Determine whether it is surplus or shortage at price $\$3$

Answer to Problem 25P

At price $\$3$, there is shortage of good Z by 60 units

Explanation of Solution

In the given table at price, $\$3$ the quantity supplied is 20 units and quantity demanded in 80 units, since the demand is more than the supply. Therefore, shortage of good will occur at price

To calculate shortage

  $\begin{array}{c}\text{Shortage}=\text{Quantity}\text{Demanded}-\text{Quantity}\text{Supplied}\\ =80-20\\ =60\end{array}$

Therefore ate price $\$3$ shortage of good Z is 60 units.

Economics Concept Introduction

Introduction:

Surplus occurs when the quantity supplied by the supplier exceeds the quantity demanded in the market.

Shortage occurs when the quantity demanded by the consumers exceeds the quantity supplied by the supplier in the market

To determine

(e)

Assume the following information for demand and supply curve for good Z

Demand	Demand	Supply	Supply
Price	Quantity demanded	Price	Quantity supplied
$\$10$	$10$	$\$1$	$10$
$\$9$	$20$	$\$2$	$15$
$\$8$	$30$	$\$3$	$20$
$\$7$	$40$	$\$4$	$25$
$\$6$	$50$	$\$5$	$30$
$\$5$	$60$	$\$6$	$35$
$\$4$	$70$	$\$7$	$40$
$\$3$	$80$	$\$8$	$45$
$\$2$	$90$	$\$9$	$50$
$\$1$	$100$	$\$10$	$55$

Determine the new equilibrium price and quantity traded if demand for Z increased by $15$ at every price.

Answer to Problem 25P

New equilibrium price of the good is $\$8$ and the quantity traded is $45$ units.

Explanation of Solution

According to the given situation, the quantity demanded increases by $15$ units at every price point.

Therefore the new quantity demanded is represented in the table below

Demand	Demand	Demand	Supply	Supply
Price	Quantity demanded	New Quantity after addition of 15 Units	Price	Quantity supplied
$\$10$	$10$	$\begin{array}{l}10+15\\ =25\end{array}$	$\$1$	$10$
$\$9$	$20$	$\begin{array}{l}20+15\\ =35\end{array}$	$\$2$	$15$
$\$8$	$30$	$\begin{array}{l}30+15\\ =45\end{array}$	$\$3$	$20$
$\$7$	$40$	$\begin{array}{l}40+15\\ =55\end{array}$	$\$4$	$25$
$\$6$	$50$	$\begin{array}{l}50+15\\ =65\end{array}$	$\$5$	$30$
$\$5$	$60$	$\begin{array}{l}60+15\\ =75\end{array}$	$\$6$	$35$
$\$4$	$70$	$\begin{array}{l}70+15\\ =85\end{array}$	$\$7$	$40$
$\$3$	$80$	$\begin{array}{l}80+15\\ =95\end{array}$	$\$8$	$45$
$\$2$	$90$	$\begin{array}{l}90+15\\ =105\end{array}$	$\$9$	$50$
$\$1$	$100$	$\begin{array}{l}100+15\\ =115\end{array}$	$\$10$	$55$

After the addition of 15 units in quantity demanded column, one can observe the equilibrium price shifted at price $\$8$ as the quantity supplied and demanded is equal and the quantity traded is $45$ units.

Economics Concept Introduction

Introduction:

Equilibrium price is the price at which the amount of quantity supplied is equal to the amount of quantity demanded, it is the price at which both the supplier and consumer is ready to trade the goods.

To determine

(f)

Assume the following information for demand and supply curve for good Z

Demand	Demand	Supply	Supply
Price	Quantity demanded	Price	Quantity supplied
$\$10$	$10$	$\$1$	$10$
$\$9$	$20$	$\$2$	$15$
$\$8$	$30$	$\$3$	$20$
$\$7$	$40$	$\$4$	$25$
$\$6$	$50$	$\$5$	$30$
$\$5$	$60$	$\$6$	$35$
$\$4$	$70$	$\$7$	$40$
$\$3$	$80$	$\$8$	$45$
$\$2$	$90$	$\$9$	$50$
$\$1$	$100$	$\$10$	$55$

Determine the new equilibrium price and quantity traded if the supply of Z is increased by $15$ units

Answer to Problem 25P

When the supply is increased by 15 units the new equilibrium price will be $\$6$ and the quantity traded is 60 units

Explanation of Solution

The new supply column when the supply of Z is increased by 15 units at each price point is shown as below

Demand	Demand	Supply	Supply
Price	Quantity demanded	Price	Quantity supplied	New quantity supplied with addition of 15 units
$\$10$	$10$	$\$1$	$10$	$\begin{array}{l}10+15\\ =25\end{array}$
$\$9$	$20$	$\$2$	$15$	$\begin{array}{l}15+15\\ =30\end{array}$
$\$8$	$30$	$\$3$	$20$	$\begin{array}{l}20+15\\ =35\end{array}$
$\$7$	$40$	$\$4$	$25$	$\begin{array}{l}25+15\\ =40\end{array}$
$\$6$	$50$	$\$5$	$30$	$\begin{array}{l}30+15\\ =45\end{array}$
$\$5$	$60$	$\$6$	$35$	$\begin{array}{l}35+15\\ =50\end{array}$
$\$4$	$70$	$\$7$	$40$	$\begin{array}{l}40+15\\ =55\end{array}$
$\$3$	$80$	$\$8$	$45$	$\begin{array}{l}45+15\\ =60\end{array}$
$\$2$	$90$	$\$9$	$50$	$\begin{array}{l}50+15\\ =65\end{array}$
$\$1$	$100$	$\$10$	$55$	$\begin{array}{l}55+15\\ =70\end{array}$

After the addition of 15 units in the supply column one can observe that the equilibrium is shifted at price $\$6$ with equilibrium quantity traded as 60 units.

Economics Concept Introduction

Introduction:

Equilibrium price is the price at which the amount of quantity supplied is equal to the amount of quantity demanded, it is the price at which both the supplier and consumer is ready to trade the goods.