Question

The data provided in the chart are in the market for a particular item of clothing. Discuss the relationship between price and quantity supplied and price and quantity demanded. Draw a supply and demand curve using these data (by hand, with approximation, is fine). Discuss the market condition and pressure on prices at each price level. What is the equilibrium price and quantity? Why?

Quantity Supplied Quantity Demanded Market Conditions Pressure on Prices 60 50 Price $ 500.00 $ 400.00 $ 300.00 $ 200.00 $ 100.00 $ 50.00

Answer 1

The relationship between Price and quantity supplied is that they are positively related. As the price increases, the sellers want to supply more of the good.

Similarly there is an inverse relation between the price and the quantity demanded. As the price increases the quantity demanded would reduce.

The market condition when the quantity supplied is more than quantity demanded, then there would be surplus. This would be at higher prices. this would create a downward pressure on the prices of clothing.

When there would be more quantity demanded than quantity supplied, then there would be shortage of the good and hence there would be upward pressure on prices.

The equilibrium would be at price $300 when the quantity demanded is equal to quantity supplied.

Price	quantity supplied	quantity demanded	Market conditions	pressure on prices
$500	60	10	surplus (50)	downward
$400	50	25	surplus(25)	downward
300	35	35	equilibrium	no
200	20	55	shortage (35)	upward
100	10	75	shortage(65)	upward
50	4	110	shortage(106)	upward

Graph is as below

500 400 300 300+-----+ 2006 y 200 1 100f 100 DD 0 10 20 30 40 50 60 70 80 90 100 110 Quantity