The table sets out the supply and demand schedule for potato chips. Price Quant.

Question

The table sets out the supply and demand schedule for potato chips.

Price                           Quant. demanded                   Quantity supplied
(cents per bag)           (millions per week)                 (millions per week)

50                                          160                                       130
60                                          150                                       140
70                                          140                                       150
80                                          130                                       160
90                                          120                                       170
100                                        110                                       180

A. Draw a graph of the potato chip market and mark in the equilibrium price and quantity.

B. IF the price is 60 cents per bag, is there a shortage or surplus, and how does the price adjust?

C. If a new dip increases the quantity of potato chips that people want to buy by 30 million bags per week at each price, how does the demand and/or supply of chips change?

D. If a new dip has the effect described in c, how does the price and quantity of chips change?

E. If a virus destroys potato crops and the quantity of potato chips produced decreases by 40 million bags per week at each price, how does the supply of chips change?

F. If E and C happen at the same time, how does price and quantity change

Explanation / Answer

sorry this diagram sucks, but equilibrium price is 65 cents, quantity is 145. 

B) there is a shortage, the price will go up by five cents

C&D)price would increase to 80 cents, and the demand at that point would be 160 units.  Tip on this one: just add thirty to each number in the demand column, and find the price where demand equils supply

E)The supply at each level decreases by 40, so do this in the column, and estimate the point where demand equals supply. at this point it is 85 cents

F) Chips would be 1 dollar per bag, as you add 30 to demand, and subtract 40 from supply and find the point they are equal.  To visualize this, the supply graph would shift down so the new vertical intercept is at 40, instead of 80, and the line would be parrallel to the old line, with the same slope.  The same, but reversed, thing happens to demand.  The liine shifts down 30 units, so the new y intercept is 180, and the line returns the same slope.  You then find the intercection point, or in equation form, set the equations equal to each other and solve for the variables, i.e.

210-x=80+x==>2x=130==>x=65

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