Question

Refer to El Q9. Consider this month's demand and supply of bread loaves in my neighborhood given in the table below. As more households move into the neighborhood, the local bakery that supplies bread to my neighborhood expects to see an increase in the demand for bread by 12 loaves next month. By how much should the local bakery increase its quantity of bread loaves supplied? Price Quantity Demanded Quantity Supplied 12 0 10 10 $0 $1.00 $2.00 $3.00 $4.00 20 30 O NA OOO 50 $5.00 80 $6.00 120 O A 20 loaves O B 12 loaves O C 10 loaves O D 8 loaves

Answer 1

As, before the increase in demand for bread loaves the equilibrium is determined at a quantity equal to 10 bread loaves at a price of $1.00 each. This is because at this point Quantity demanded is equal to quantity supplied.

Now, the demand for bread loaves increases by 12 because of more consumers. The quantity demanded will increase by 12 at each price keeping quantity supplied unchanged. The table is:

Price in Dollars	Quantity Demanded	Quantity Supplied
0	12+12 = 24	0
1	10 + 12 = 22	10
2	8 + 12 = 20	20
3	6 + 12 = 18	30
4	4 + 12 = 16	50
5	2 + 12 = 14	80
6	0 + 12 = 12	120

Hence, new equilibrium is at 20 bread loaves.

Hence local bakery should increase the supply of bread loaves by 20-10 = 10 bread loaves.

Hence option C is correct