Answer:
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.
Answer:
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.
Answer:
First we solve for the demand and supply in terms of price.
Next we equate demand and supply to solve for price.
Lastly we substitute equilibrium price into demand or supply to solve for equilibrium quantity.