Question

1. Review on demand and supply of flashlights 1) Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity Price Quantity Demanded Quantity Supplied $5 $4 $3 $2 $1 Per Month 6,000 8,000 10,000 12,000 14,000 Per Month 10,000 8,000 6,000 4,000 2,000 2) What is the equilibrium price and the equilibrium quantity? 3) Suppose the price is currently $5. What problem would exist in the market? What would you expect to happen to price? Show this on your graph. 3) Suppose the price is currently $2. What problem would exist in the market? What would you expect to happen to price? Show this on your graph

Answer 1

The graph is as follows.

16,000 1 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2 4 5 Price ($)

From the graph, it is clear that equilibrium takes place where demand equals supply, where price = $4 & Quantity = 8,000 units.

If current price is $5, from the date (and graph) we see that at this price, demand is 6,000 & supply is 10,000. There is excess suply of 4,000 units.

Due to excess supply, the price will start decreasing until the time that demand equals supply, and the new equilibrium will be established at that (Price, Quantity) level. This new price will be lower than current price of $1.