Question

7. Given the following information about the demand and supply for orange uice, answer the questions that follow: Quantity SuppliedDemanded PRICE 700 600 500 100 700 300 a. b. What is the equilibrium price and quantity in this market? Graph both the demand and supply curves and clearly identify this market equilibrium. c. Using your graph, clearly explain why P1 and P 5 are not the equilibrium prices. d. Suppose the demand for orange juice were to increase so that people want to buy 300 million more gallons at each price. How would that change the data above? How would it shift the demand curve you drew? Show this change on your market model. What is the new equilibrium price and quantity? e.

Need help specifically on letter E. Thank you.

Answer 1

1.) The equilibrium price is at $3 for 500 units where the quantity demanded is equal to the quantity supplied.

If the price were initially lower than the equilibrium price, consumers would want to buy more than suppliers want to sell.

If the price of juice is $1 firms are willing to supply 100 units but consumers demand is 700 units. At this price, the market is in disequilibrium, there is excess demand the amount by which the quantity demanded exceeds the quantity supplied.

If the price is initially above the equilibrium level, suppliers want to sell more than consumers want to buy. There is excess supply the amount by which the quantity supplied is greater than the quantity demanded.

2) Attached is the graph illustrated. Figure 1 The price where demand curve and supply curve intersect is equilibrium price.

ν-axis 3 Figure 1 2. 100 200 300 hoo Soo Goo 20 goo 900 1000 uent

3) Attached is the graph illustrated. Figure 2

S オ Suspluu 녀 3 Figure 2 2. Sh0tage ot00 200 300o o Goo 30D 90o 100 uent

At P =1 the quantity demanded is 700 units and quantity supplied is 100 units which creates a shortage of 600 units (700-100). The market is at disequilibrium due to Shortage and Excess of demand. At lower price the consumer tends to buy more and firms tends to sell less to meet the cost of production.

At P =5 the quantity demanded is 300 units and quantity supplied is 900 units which creates a surplus of 600 units (900-300). The market is at disequilibrium due to Surplus and Excess of supply. At higher price the consumer tends to buy less and firms tends to sell more to earn more profit.

4) Attached is the graph illustrated. Figure 3

The change in demand at every price is 300 units which shifts the demand curve from D to D1 which changes the market model and equilibrium price. The equilibrium shifts from e1 to e2.

Price	Quantity Supplied	Quantity demanded
1	100	1000 (700+300)
2	300	900 (600+300)
3	500	800 (500+300)
4	700	700 (400+300)
5	900	600 (300+300)

ayis 3 2. uanti Figure 3

5) The new equilibrium price is $4 and quantity demanded and supplied is equal to 700 units. As the quantity supplied does not change the demand curve shifts from D to D1 and the new equilibrium price is at $4 where there is no excess supply or excess demand (Surplus or Shortage). The price where demand curve and supply curve intersect is equilibrium price.

Attached is the graph illustrated. Figure 4.