The Equilibrium Price and Quantity
Autor: Loan Tran • March 31, 2015 • Study Guide • 1,265 Words (6 Pages) • 992 Views
Question 1:
Figure 1.1
[pic 1]
- The equilibrium price and quantity is when quantity demanded equals to quantity supplied. The equilibrium price is $8/pizza and the equilibrium quantity is 600 pizzas.
- If the price is $10:
When the price increases to $10/pizza, QD=500 pizza/week and QS=800 pizza/week so there is a surplus of 300 pizza/week in supply. The surplus leads to a fall in the price. The lower price increases the quantity demanded and decreases the quantity supplied. This situation will continue happening until it meets the previous equilibrium point at $8/pizza.
- If the price is $6:
When the price decreases to $6/pizza, QD=700 pizza/week and QS=400 pizza/week so there is a shortage of 300 pizza/week in supply. The shortage leads to a rise in the price. The higher price decreases the quantity demanded and increases the quantity supplied. This situation will continue happening until it meets the previous equilibrium point at $8/pizza.
Price ($/pizza) | Quantity demanded (Q0) (pizzas/week) | New quantity demanded (Q1) (pizzas/week) | Quantity supplied (pizzas/week) |
5 | 750 | 900 | 300 |
6 | 700 | 850 | 400 |
7 | 650 | 800 | 500 |
8 | 600 | 750 | 600 |
9 | 550 | 700 | 700 |
10 | 500 | 650 | 800 |
11 | 450 | 600 | 900 |
12 | 400 | 550 | 1,000 |
Figure 1.2
[pic 2]
The report stated that the pizza has been discovered to help prevent heart diseases, which will “increase the quantity of pizza demanded by 150 at each price”.
As a result, the demand curve will shift rightward from D0 to D1 as illustrated in Figure 1.2, hence the new equilibrium price is $9/pizza and new equilibrium quantity is 700 pizzas/week.
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