Question

The market for pizza has the following demand and supply schedules: 

 a. Graph the demand and supply curves. What are the equilibrium price and quantity

 b. Ifthe actual price in this market were above the equilibrium price, what would

 c. If the actual price in this market were below the equilibrium price, what would in this market? drive the market toward the equilibrium? drive the market toward the equilibrium?

Answer 1

(a) By plotting the quantity demanded and quantity supplied at the different price levels ,we get the demand and supply curve as shown below:

Equilibrium occurs where demand and supply curves intersect.

Hence, Equilibrium price=$6 And Equilibrium quantity =81 pizzas.

(b) If the actual price were above the equilibrium price, i.e price is above $6 ,then quantity supplied would exceed quantity demanded, so suppliers would reduce the price to gain sales . And as result, market go towards the equilibrium.

(c) If the actual price were below the equilibrium price i.e price is below $6, then quantity demanded would exceed quantity supplied, so suppliers could raise the price without losing sales. In both cases, the price would continue to adjust until it reached $6, at which there is neither a surplus nor a shortage.

Answer 2