Answer to Question #260875 in Microeconomics for Abbey

Question

1) Using the following table, prepare a diagram illustrating the demand and supply curves. Properly label the diagram and include the following:

i) demand and supply curves

ii) price and quantity axes

iii) equilibrium

iv) shortage

v) surplus

Table:

Quantity Demanded Price Quantity Supplied

10 $100 50

20 $80 40

30 $60 30

40 $40 20

50 $20 10

Answer 1

The demand curve depicts the inverse relationship between quantity demanded and price

The supply curve depicts the direct relationship between quantity supplied and price.

Equilibrium occurs at the intersection point of demand and supply.

A surplus implies supply is greater than demand. Price above the equilibrium price causes surplus in the market

A shortage implies supply is lower than demand. A price below the equilibrium price causes a shortage in the market. 

Equilibrium occurs at the intersection point of the demand and supply curve. 

Hence, the equilibrium price is 60 and the equilibrium quantity is 30

A shortage occurs at price lower than the equilibrium price. For example, at a price of 40, there is a shortage of 20 units (i.e., supply is lower than demand by 20 units)

A surplus occurs at price higher than the equilibrium price. For example, at a price of 80, there is a surplus of 20 units (i.e., supply is higher than demand by 20 units)