The table below shows the demand and supply schedules for rolls of film. Price Q
ID: 1216394 • Letter: T
Question
The table below shows the demand and supply schedules for rolls of film.
Price
Quantity demanded
Quantity supplied
($ per roll)
(rolls per week)
(rolls per week)
2.00
3,000
1,000
3.00
2,500
1,500
4.00
2,000
2,000
5.00
1,500
2,500
6.00
1,000
3,000
a. Explain the concepts of demand, supply, and market equilibrium. What is the market equilibrium price for rolls of film? What is the equilibrium quantity?
b. If the price of film is $3 a roll, describe the situation in the film market. Is there shortage or surplus at this price? Explain how market equilibrium is restored.
c. A rise in income increases the quantity demanded by 1,000 rolls a week at each price. Draw a new table to account for this change in demand.
What will be the new equilibrium price? Which quantity will be traded? Explain how the film market adjusts to its new equilibrium.
d. The number of film production lines increases, and at the same time, people switch to digital cameras. How do these events influence demand and supply? Do they create a shortage or a surplus at the equilibrium price in part a? Describe how the price and quantity change.
Price
Quantity demanded
Quantity supplied
($ per roll)
(rolls per week)
(rolls per week)
2.00
3,000
1,000
3.00
2,500
1,500
4.00
2,000
2,000
5.00
1,500
2,500
6.00
1,000
3,000
Explanation / Answer
a. The demand schedule the amount of quantity demanded at various price level in the economy. The supply schedule shows the amount of quantity supplied at various price level in the economy. The price level at which the amount of quantity demanded is equal to the amount of quantity supplied is the equilibrium price level and the quantity is the equilibrium quantity.
The amount of quantity demanded is equal to the amount of quantity supplied at price level equal to $4 and the equilibrium amount of quantity is 2000 units.
b. If the price = $3, the amount of quantity demanded exceeds the amount of quantity supplied and thus there is shortage in the market. The price level will increase due to shortage and equilibrium will be restored at $4.
c. Quantity demanded
4000
3500
3000
2500
2000
The equilibrium price will rise to $5 and equilibrium quantity is 2500 units. The demand curve will shift rightwards and the new equilibrium will be established at the point of intersection of new demand curve and initial supply curve. AT the initial price level, there will be excess of quantity demanded and thus price level will rise.
d. The supply curve will shift rightwards. Thus, at the initial price level there is excess of quantity supplied. This will lead to lowering of equilibrium price level and raising the equilibrium level of the quantity.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.