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# Supply and Demand

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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.