Question

5. The next three questions refer to the below supply and demand graph for a good from the private sector where competition exists. (10 points) (a) What does point c represent? what does the line segment ef at output a, represent? Where will the new equilbrium price r rest at? is the supplier or the consumer impacted by this price and output? c) At what output level is there an underallocation of resources to the production of this sood? Where will the new price rest at and is the supplier or the consumer impacted by thes price and output? Colective querbity demanded and supplied

Answer 1

a) point 'c' represents equilibrium price.

Equilibrium price-It is a point where the quantity demanded of a commodity becomes equal to the quantity supplied.

c) The output level will be 'OQ1' and price will be 'OP1' and 'ab' is a situation of Excess demand (shortage) and there is a term for that called 'Price ceiling'.