Answer to Question #220735 in Microeconomics for Qaswar

Question

The market for Milk has the following demand and supply schedules:

Price

Quantity Demanded (Milk)

Quantity Supplied (Milk)

$7

155

36

$8

124

63

$9

101

91

$10

88

108

$11

73

120

$12

59

131

d) Graph the cemand and supply curves. What is the equilibrium price and quantity in this market?

e) If the actual price in this market were above the equilibrium price, what would drive the market

toward the equilibrium?

) If the actual price in this market were below the equilibrium price, what would drive the market

tcward the equilibrium?

Answer 1

Solution:

d.). The demand and supply curves are as below:

 

 

 

 

At equilibrium, the quantity demanded is equal to quantity supplied: QD = QS.

According to the demand and supply curves, the equilibrium price and quantity are as follows:

The equilibrium price = $9.5

The equilibrium quantity = 96 units

 

e.). If the actual price in this market were above the equilibrium price of $9.5, then the quantity supplied will be greater than the quantity demanded creating a surplus. Therefore, suppliers will reduce their prices to lower the surplus in order to gain sales, which would drive the market toward equilibrium.

 

f.). If the actual price in this market were below the equilibrium price of $9.5, then the quantity demanded would be greater than the quantity supplied creating a shortage. Therefore, suppliers will raise their prices without losing sales, which would drive the market toward equilibrium.