Question

Use the following data for the prices of a demand curve for Coffee Club Express:

$0
$5
$10
$15
$20
$25
$30
$35
$40
$45

In a spreadsheet populate another column and label it "Quantity Demanded". The relationship will be Qd = 110 - 2 x P. Now compute the data for the quantity demanded at each of the price data points given in the problem above. Now do the same thing using the supply relationship Qs = -10 + 2 x P. With this information you should now be able to determine the equilibrium price and quantity in this market. Now assume that the supply increases to the right by 20 units for every given price. What is the new equilibrium quantity and the new equilibrium price? Lastly, construct the supply and demand diagram in Excel and upload this document.

Answer 1

Solution:

Demand function is Qd = 110 - 2P, and supply function is Qs = -10 + 2P, thus we have following data points:

Price, P	Qd	Qs	Qs' (with supply increase)
0	110 - 2*0 = 110	-10 + 2*0 = -10	-10 + 20 = 10
5	110 - 2*5 = 100	-10 + 2*5 = 0	0 + 20 = 20
10	110 - 2*10 = 90	-10 + 2*10 = 10	10 + 20 = 30
15	110 - 2*15 = 80	-10 + 2*15 = 20	20 + 20 = 40
20	110 - 2*20 = 70	-10 + 2*20 = 30	30 + 20 = 50
25	110 - 2*25 = 60	-10 + 2*25 = 40	40 + 20 = 60
30	110 - 2*30 = 50	-10 + 2*30 = 50	50 + 20 = 70
35	110 - 2*35 = 40	-10 + 2*35 = 60	60 + 20 = 80
40	110 - 2*40 = 30	-10 + 2*40 = 70	70 + 20 = 90
45	110 - 2*45 = 20	-10 + 2*45 = 80	80 + 20 = 100

Equilibrium occurs where the quantity demanded equals the quantity supplied. So, before supply change, equilibrium occurs at price level of $30 per unit, and equilibrium quantity is 50 units.

With supply change, equilibrium price falls to $25 per unit, and equilibrium quantity increases to 60 units.

Following is the required graph:

Price, 0 10 20 30 40 70 80 90 100 50 60 Quantity, Q