Answer to Question #247300 in Microeconomics for Sukhjot

Question

The following Table-2 depicts the market for pizzas (number of pizzas per month).

Use this table to answer following questions. 4 Table-2

  Price ($) per pizza

 2.00

 3.00

 4.00

 5.00

 6.00

 Quantity demanded

 640

 600

 560

 520

 460

 Quantity supplied

  400

  480

  560

  640

  720

 (a) Draw the demand curve for pizzas and supply curve of pizza in a diagram

(b) Explain how the equilibrium in pizza market is determined

(c) What are the values of equilibrium price and quantity exchanged

(d) What will happen in equilibrium price and the quantity demanded if the price of

sandwich goes up assuming that both pizza and sandwich are normal goods

(e) What will happen in equilibrium price and the quantity demanded if an advanced

technology introduced in pizza production

Answer 1

Solution:

a.). The demand and supply curve for pizzas is as follows:

 

b.). The equilibrium in the pizza market is determined at the point where the quantity demanded equals the quantity supplied. The point where the demand curve intersects the supply curve.

 

c.). The equilibrium price is $4.00 and the equilibrium quantity is 560 units.

 

d.). Since both pizza and sandwiches are substitutes, the quantity demanded for pizza will increase since most consumers will tend to substitute sandwiches for pizza. Due to the high demand for pizza, its prices will also increase. This will ultimately lead to an increase in the equilibrium price and quantity for pizza.

 

e.). The new technology in pizza production will reduce the cost of pizza production shifting the supply curve downwards to the right. The demand curve will not shift but the market will move along the demand curve to a new equilibrium. Equilibrium price will fall and equilibrium quantity for pizza will increase.