Exercise 3-2) Market Equilibrium

Market Supply and Demand

Q. What effect does a surplus have on the price of a product? What about a shortage?

: Surplus will make sellers do competition so the price will go down. Buyers eager to buy due to the decreasing price so the quantity supplied go down. Shortage will cause the competition among buyers so the price will go up. Because of the price, sellers will try to supply more quantities but buyers purchase less.

Q. The following table shows the demand and supply of eggs (in hundreds of thousands per day).

A)   What are the equilibrium price and the equilibrium quantity?

: $3.50 and 48

B)   Complete the surplus/ shortage column. Using this column, explain why your answer to question A must be correct.

Price	Quantity Demanded	Quantity Supplied	Surplus/Shortage
$2.00	60	30	-30
2.50	56	36	-20
3.00	52	42	-10
3.50	48	48	0
4.00	44	54	10

: $3.5 is the only price with no surplus and no shortage.

C)   What would be the surplus/shortage at a price of $2.50? What would happen to the price and the quantity traded?

: It is Shortage 20 and price will go up to equilibrium price $3.5 and equilibrium quantity 48.

D)   What would be the surplus/shortage at a price of $4? What would happen to the price and the quantity traded?

It is Surplus 10 and the price will decrease to $48 and the quantity traded increase from 44 to 48.