Explore BrainMass
Share

Explore BrainMass

    Supply and Demand

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    3.      Using the following schedule, define the equilibrium price and quantity.
    Describe the situation at a price of $10. What will occur? Describe the situation at a price of $2. What will occur?

    Price Quantity Demanded Quantity Supplied
    $1 500 100
    $2 400 120
    $3 350 150
    $4 320 200
    $5 300 300
    $6 275 410
    $7 260 500
    $8 230 650
    $9 200 800
    $10 150 975

    Equilibrium occurs when quantity demanded equals quantity supplied.
    In this schedule it occurs when the price is $5, and the quantity demanded equals quantity supplied,
    that is 300. When the price is $10, there will be excess supply (975) and very small demand (150)
    leading to a surplus in the market. The surplus can fall only when producers start charging lower
    prices to get rid of their inventories. This process will continue till the prices converge to $5. If the
    price is $2 then we have the opposite situation: very high demand (400) and very small supply (120).
    Thus we will have a shortage in the market, and consumers will be willing to pay a higher price.
    The price will therefore rise till it reaches the equilibrium price of $5.

    © BrainMass Inc. brainmass.com October 10, 2019, 12:44 am ad1c9bdddf
    https://brainmass.com/economics/general-equilibrium/markets-demand-supply-price-system-304623

    Attachments

    Solution Preview

    Any price less than $5 will be a effective price ceiling. If the ceiling is set at $2,then we have very high demand (400) and very small supply (120). Thus we will have a shortage in the market, and consumers will be willing to pay ...

    Solution Summary

    The solution goes into a great amount of detail related to the supply and demand question being asked. The solution is very easy to follow along and can be easily understood by anyone with a basic understanding of the concepts. The solution answers all the question(s) being asked in a succinct way. Overall, an excellent response.

    $2.19