Question

Figure Mary's Ice Cream Ashley Ice Cream Refer to Figure. If Mary Ice Cream and Ashley loe Cream are the only two sellers of ice cream in the market, then the market quantity supplied at a price of 56 would 21 units

Answer 1

1. The quantity of market supply is the summation of supply made by all the sellers at a given price. At a price of $6 Mary’s supply is 10 and that of Ashley’s is 12. Then the total quantity of market supply is 22.

Answer: a. 22 units.

2. When the price falls the consumer moves down along the demand curve. The consumer moves from point A to B due to the fall in price from P to P¹. The change in price of substituted goods and change income cause shift in demand curve.

Answer: b. decrease in price.

3. At a price of $8 quantity supplied is 8 units and quantity demanded is 2 units. Hence there is a surplus of 6 units (8-2). At a price of $5 quantity demanded is equal to quantity supplied at 5 units. There is neither shortage nor surplus. At a price of $2 the quantity demanded is 8 units, but the quantity supplied is 2 units. Hence there is a shortage of 6 units ( 8-2).

Answer: d. all the above are correct.

4. At the price of $15, the quantity demanded is 700 units but the quantity supplied is 400 units. Hence there exists a shortage equal to 300 units. When the quantity demanded exceeds the quantity supply, there will be a competition among the buyers to buy the product. This competition will raise the price. The point of intersection between the price line and supply curve is the quantity supplied. The point of intersection between the price line and demand curve is the quantity demanded.

Answer: c. shortage of 300 units and price would rise.