Answer to Question #295835 in Microeconomics for Magodi

Question

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

PRICE (kwacha) QUANTITY DEMANDED QUANTITY SUPPIED

4 10,000 8,000

8 8,000 8,000

12 6,000 8,000

16 4,000 8,000

20 2,000 8,000

a) Graph the demand and supply curves. What is the equilibrium price and quantity in this

market? (5 Marks) What is unusual about this supply curve?[1] Why might this be true?[1]

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

market toward the equilibrium? (1 Marks)

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

market toward the equilibrium? (1 Marks)

d) Differentiate inferior good from Normal good [1 mark]

Answer 1

Qn. A

Equilibrium Price= 8 kwacha

Equilibrium Quantity = 8,000

The unusual thing about this supply curve is the fact that it does not change to respond to changes in price and demand. this instance can be made true when there are high production costs in the supply of the concerned good or need for a sophisticated technology (Sekisov et al., 2018).

Qn. B

If prices in the market went to a high of 12 for example, the amount of quantity the consumers are willing to consume at this level is just equal to 6,000 which creates a surplus situation in the market where supplies will be forced to drop prices to initial equilibrium to avoid wastage.

Qn. C

When prices in the market go below equilibrium, to reach a 4 say for example, creates a deficit situation in the market where more products are needed that the suppliers can offer, which leads to an increased price situation to equilibrium levels.

Qn. D

According to economics laws, an inferior good is one whose demand shall decrease with increased income of a rational consumer. A normal good on the other hand is that which, demand will increase with increase in income.

Reference.

Sekisov, A. N., Degtyareva, O. G., Samsonova, N. V., & Grigoryan, M. N. (2018). Development of the methods improving the production costs formation process. In Materials Science Forum (Vol. 931, pp. 1210-1213). Trans Tech Publications Ltd. https://doi.org/10.4028/www.scientific.net/MSF.931.1210