Theory question 102
Price DeterminationSection A: answer one question only from this section.
SUPPLY AND DEMAND SCHEDULE
Price per unit (N): 5, 6, 7, 8, 9, 10
Quantity demanded per week: 500, 400, 300, 250, 150, 50
Quantity supplied per week: 60, 150, 300, 400, 500, 600
Use the schedule above to answer the following questions: (a) At what price and quantity does the market attain equilibrium and why? (b) At what prices does the market exhibit excess demand and by how many units? (c) At what prices does the market exhibit excess supply and by how many units? (d) At what price will the supplier be willing to sell most? What quantity will he be willing to sell at that price?
Show the model answer
(a) Equilibrium price N7, quantity 300 units per week, because at N7 quantity demanded (300) equals quantity supplied (300)
(b) Excess demand at N5: 500 − 60 = 440 units
Excess demand at N6: 400 − 150 = 250 units
(c) Excess supply at N8: 400 − 250 = 150 units
Excess supply at N9: 500 − 150 = 350 units
Excess supply at N10: 600 − 50 = 550 units
(d) At the highest price, N10, he is willing to sell the most: 600 units
Excess demand occurs below the equilibrium price, excess supply above it.