Question

Draw a Supply and Demand Graph for yourself. Now draw a dashed line vertically down through the equilibrium price at the equilibrium quantity. Which portion of the supply curve will participate in sales? Which portion of the demand curve will participate in purchases?

Answer 1

In the above diagram, the demand curve id represented as DD and the supply curve is represented by SS. P* and Q* are the equilibrium price and quantity respectively. As per the instruction given in the question a dashed line is drawn vertically down though the equilibrium price at the equilibrium quantity.

The portion of the supply curve that will participate in sales is the portion which is at the right hand side of the vertical dashed line, which is the portion of the supply curve marked in thick red color. This is because, as the price is high in this region, producers will try to operate at this portion of the supply curve so that they can earn maximum profit. If they would have operated on the supply curve situated at the left side of the vertical dashed line, and which is marked in thick black color where the price is low, they would have earned lesser profits.

The portion of the demand curve that will participate in purchases is the portion which is at the left hand side of the vertical dashed line and that is marked in thick blue color. This is because the consumers will always try to purchase commodities at the lowest price possible. The prices are low at the left hand side of the vertical dashed line. If they made their purchases at the portion of the demand curve which lies at the right hand side of the vertical dashed line and marked in thick black color, they would have to pay much higher prices, and that is not at all desirable by the consumers.

Thus the thick red colored portion of the supply curve is the portion where sales will be done and the thick blue colored portion of the demand curve is the position where the purchases will be made.