Question

Market equilibrium and disequilibrium 

The following graph shows the monthly demand and supply curves in the market for hats. 

 Use the graph input tool to help you answer the following questions. Enter an amount into the Price field to see the quantity demanded and quantity supplied at that price. You will not be graded on any changes you make to this graph.

 The equilibrium price in this market is _______  per hat, and the equilibrium quantity is _______  hats bought and sold per month

Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus and whether this places upward or downward pressure on prices.

Answer 1

The equilibrium price of the market is $30 per hat. The equilibrium quantity is 500 hats.

At the price of $42, there is a supply of 1000 hats and the demand is 300 hats. Hence there is a surplus of 700 hats in the market that will put downward pressure on the market price.

Similarly at price $18, there is a demand of 700 hats and the supply is 0. Hence there is an excess demand(i.e shortage) in the market. This will put an upward pressure on price.