Question

3. In Kingsbury County, there is a demand and supply schedule for fast food. Here is the table below: Price Quantity Supplied Quantity Demanded 4.00 3,000 5,000 4.50 3,500 4,500 4,000 4,000 5.50 4,500 3,500 6.00 5,000 3,000 5.00 a. Draw the supply and demand curve based on the table above. b. What is the equilibrium price and quantity? c. If fast food restaurants set the price at $5.50, then how would markets react? Would it be in equilibrium or would it be a surplus or shortage? d. If fast food restaurants set the price at $4.50, then how would markets react? If it is not in equilibrium, then how would they respond in order to get back to equilibrium?

Answer 1

Answer

a)

Placing the points and joining we get the curs as follows

Price (4000,5) Supply curve - Demand curve 2500 3000 3500 4000 5500 4500 5000 quantity

b)

from the graph, the equilibrium price is $5 and quantity is 4000 units where Qd=Qs

=======

c)

P=$5.5

where

Qd=3500 and Qs=4500

Qs>Qd so there is a surplus

surplus =Qs-Qd=4500-3500=1000 units

The surplus is 1000 units

The surplus forces the suppliers to reduce the price the market reacts by decreasing price and move toward the equilibrium price and quantity.

=======

d)

P=4.5

where

Qd=4500 and Qs=3500

Qd>Qs so the market is in shortage

shortage =Qd-Qs=4500-3500=1000 units

the market is in shortage so the buyers pay more to get the good and the market move towards equilibrium.