Computing the equilibrium price, quantity and shortage/ surplus under perfect competition.
The following are the numbers for a market for sugar (it's a competitive market):
Price$
|
Quantity Demanded, lb
|
Quantity Supplied, lb
|
9.00
|
400
|
620
|
8.50
|
420
|
600
|
8.00
|
440
|
580
|
7.50
|
480
|
560
|
7.00
|
500
|
540
|
6.50
|
520
|
520
|
6.00
|
540
|
500
|
5.50
|
560
|
480
|
a) Find the equilibrium price.
b) Find the equilibrium quantity;
c) If the government established a minimum price for sugar at $8.00, would it create a surplus or a shortage?
d) What is the surplus/shortage (in lb) at price $8.00?
e) What is the cost (in $) of producing the 560th pound of sugar?
Now suppose there's an increase in price of honey (sugar's substitute)
f) Will there be an increase in the demand for sugar or a decrease in the demand for sugar?
g) Suppose this increase/decrease in the demand for sugar changes quantity demanded by 40 lb at every price. Find a new equilibrium price and equilibrium quantity.