Answer to Question #264865 in Microeconomics for Justin

Question

9. The table below illustrates the interaction of demand and supply in the market for gasoline.

Supply and Demand Schedule of Gasoline

Price (cents) Quantity Demanded Quantity Supplied

1.00 800 500

1.20 700 550

1.40 600 600

1.60 550 640

1.80 500 680

2.00 460 700

2.20 420 720

Suppose the price of gasoline is $1.60 per gallon.  

a. Is the quantity demanded higher or lower than at the equilibrium price?  ___________

b. What about the quantity supplies?  ___________

c. Is there a shortage in the market?  ___________

d. If so, how much? ___________

Answer 1

a.

$P=1.6\\Qs=640\\Qd=550$

Qd at current price is less than the equilibrium price

(P>P^*)

b.

P>P^*

Thus supplies more unit inorder to attain more profit. This quantity supplied exceed in comparison to equilibrium level.

c.

No

$At \space P=1.6\\Qs>Qd$

Leading to surplus goods on the market.

d.

$640-550=90\space units$