Question

5.11 The following table represents the market for solar wireless keyboards. Plot this data on a supply and demand graph and identify the equilibrium price and quantity. Explain what would happen if the market price is set at $60, and show this on the graph. Explain what would happen if the market price is set at $30, and show this on the graph. Quantity Supplied Quantity Demanded Price $ 10.00 28 20.00 24 3 30.00 20 40.00 16 12 50.00 12 60.00 15 70.00 4 18

Answer 1

The demand for the good is an inverse relationship between price and quantity. The equation of the demand curve gives the quantity demanded as a function of price. The graphical relationship between price and quantity demanded is depicted by the demand curve. Any point on the demand curve shows the number of consumer demands for any particular price. The inverse demand curve represents price as a function of quantity.

The supply for good is the direct relationship between price and quantity. The equation of the supply curve gives the quantity supplied as a function of price. The graphical relationship between price and quantity supplied is depicted by the supply curve. Any point on the supply curve shows the quantity producers supply for any particular price. The inverse supply curve represents price as a function of quantity.

The equilibrium is the point at which the quantity demanded by the consumer equals the quantity supplied by the producers at a particular price. It is the point of intersection between demand and supply curve.

The demand and supply of the wireless keyboard are given in the figure below:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 -Demand — Supply — $30 — $60

The equilibrium occurs where the demand curve intersects the supply curve. This occurs at point E. At point E, the equilibrium quantity is 12 units and the equilibrium price is $50 per unit.

Suppose that the market price is set at $60. At $60, from the demand curve, the quantity demanded is 8 units and the quantity supplied is 15 units. Therefore, there will be excess supply in the economy of 7 units. This excess supply will prompt the supplier to decreases price of the good. The decrease in price will increase quantity demanded. The economy will move back to the equilibrium point E.

Similarly, suppose that the market price is set at $30. At $30, from the demand curve, the quantity demanded is 20 units and the quantity supplied is 6 units. Therefore, there will be excess demand in the economy of 14 units. This excess demand will push the price up as some consumers will be willing to pay more for the good. The increase in price will increase quantity supplied. The economy will move back to the equilibrium point E.