Question

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

Price	Quantity Demanded	Quantity Supplied
$4	135 pizzas	26 pizzas
5	104	53
6	81	81
7	68	98
8	53	110
9	39	121

a. (0.4 pt) Graph the demand and supply curves. What is the equilibrium price and equilibrium quantity in this market? (Make sure to label the axes.)

b. (0.2 pt) If the actual price in this market was below the equilibrium price, what would result? Then, what would drive the market toward the equilibrium?

c. (0.2 pt) If the actual price in this market was above the equilibrium price, what would result? Then, what would drive the market toward the equilibrium?

4. Using supply-and-demand diagrams (one graph for each), show the effect of the following events on the market for sweatshirts. (Make sure to label the axes.)

→ identify whether the event shifts the supply curve or the demand curve

→ illustrate on the graph which direction the curve shifts

→ illustrate and state how the shift changes the equilibrium price and equilibriun quantity

a. (0.25 pt) A hurricane in South Carolina damages the cotton crop.

b. (0.25 pt) The price of leather jackets falls. A leather jacket is a substitute.

c. (0.25 pt) All colleges require morning exercise inappropriate attire.

d. (0.25 pt) New knitting machines are invented.

Answer 1

3 a) The equilibrium price is $6, and quantity is 81 pizzas. Equilibrium price and quantity occur at the intersection of demand and supply curves, when quantity demanded equals quantity supplied.

3 b) When the market price is below equilibrium price, quantity demanded will exceed quantity supplied. This would result in a shortage of goods, putting an upward pressure on the price as there will be more buyers chasing the available goods. As price increases the suppliers will start producing more but the demand from buyers will decrease. This will drive the price and quantity to its equilibrium level.

3 c)

When the market price is above the equilibrium price, there will be surplus of pizzas, the quantity supplied will exceed quantity demanded. This would put a downward pressure on the price as manufacturers will have excess inventories will be willing to supply at lower prices. As prices fall, the consumer demand will increase until it finally settles at the equilibrium price.

Market for pizzas. 8,53 Surplus 8 / le P= 5,104 Price betid sad Shortage D 21. o 30 60 90 120 150 Quantity (Pizzas)