Quiz 3: Demand, Supply, and Market Equilibrium

a. The table below shows the corresponding numbers. Since demand and supply must equal at the equilibrium price, only the third row fulfills this requirement. When demand is D2 and Supply is S1, the equilibrium quantity is 8,000, and the corresponding price is given, $3. b. In the case of D1 and S1 the equilibrium is 7,000 at $2. In the case of D1 and S2, the equilibrium is 8,000 at $1. The quantity increases by 1,000 and the price decreases by $1. c. In the case of D2 and S2 the original equilibrium is 8,500 at $2. In the case of D1 and S1, the equilibrium is 7,000 at $2. The quantity decreases by 1,500 and the price increases by $1. In the case of D1 and S2, the equilibrium is 8,000 at $1. Compared to the case of D2 and S2, quantity decreases from 8,500 to 8,000 and price decreases from $2 to $1. In the case of S1 and D2, the equilibrium is 8,000 at $3. Compared to the case of D2 and S2, quantity decreases from 8,500 to 8,000 and price increases from $2 to $3. d. When supply is S1 and demand is D1, at price $3 the supply is 8,000. At equilibrium demand must also be 8,000. The original demand is 6,000. Thus demand has to increase by 2,000 for $3 and 8,000 to be equilibrium. When supply is S1 and demand is D1, at price $4 the supply is 9,000. At equilibrium demand must also be 9,000. The original demand is 5,000. Thus demand has to increase by 4,000 for $3 and 8,000 to be equilibrium.

Preset prices are imaginary prices determined without considering the market demand for the product. The prices often do not match the market equilibrium and hence result in a shortage or surplus. In the case of movie tickets, the prices are fixed estimating the demand. If the movie makes a positive review, it may result in a shortage. Conversely, if it makes a negative review, it results in surplus. However, in the case of gasoline, customers tend to search for alternative fuels and alternative modes of transport thus creating shortage and surplus.

a. The table below shows the corresponding numbers. The principle underlined these numbers is: market demand is the summation of individual demands. b. At a price of $5, Dex demands the least - 4 candies. At a price of $7, Tex demands the most - 8 candies. c. When the price decreases from $7 to $6, Tex increases his demand from 8 to 12, or 50%. Similarly, Dex increases his demand by 50%, and Rex by 100%. Thus, Rex's quantity demanded increases the most. d. If Tex withdrew, then, the market demand curve would shift to the left because there would be less quantity demanded at every price level. If Dex doubles his demand, then, the market demand curve would rotate to the right because there would be more quantity demanded at every price level, but the increased quantity is not equal at every price level. The table and graph below illustrates this change. e. This is a change in demand, because the price did not change. On the contrary, a change in the quantity demanded is caused by a change in price.