Equilibrium price and equilibrium quantity

Full Answer Section

• Connect the points to form a smooth, upward-sloping line.

Labeling:

• Clearly label the axes as "Price (P)" and "Quantity (Q)".
• Label the demand curve as "D" and the supply curve as "S".
• Label the equilibrium point (where the curves intersect) as "E".

b. Equilibrium Price and Quantity:

• The equilibrium point is where the demand curve (D) and the supply curve (S) intersect. This is the point where the price is acceptable to both buyers and sellers, and there is no excess supply or demand.
• To find the equilibrium price and quantity, solve the system of equations:
  • Qd = Qs
  • 150 - (2/3)P = (3/2)P + 2
• Solving for P, we get P = 78.
• Substituting P back into either demand or supply equation, we get Q = 68.

Therefore, the equilibrium price is $78 and the equilibrium quantity is 68 snow shovels.

c. Price at $90:

• At a price of $90, we can use either the demand or supply equation to find the quantities:
  • Qd = 150 - (2/3) * 90 = 46
  • Qs = (3/2) * 90 + 2 = 137
• At $90, there is a surplus of 91 snow shovels (Qs - Qd = 137 - 46) because the quantity supplied is greater than the quantity demanded.

d. Market Situation at $90:

• The market is in surplus when the price is $90 because the quantity supplied exceeds the quantity demanded.
• Suppliers are willing to sell more snow shovels than buyers are willing to buy at this price.
• This surplus will put downward pressure on the price. As sellers compete to sell their excess inventory, the price will tend to decrease until it reaches the equilibrium price of $78.

e. Price at $58:

• At a price of $58, we can again use either equation:
  • Qd = 150 - (2/3) * 58 = 104
  • Qs = (3/2) * 58 + 2 = 89
• At $58, there is a shortage of 15 snow shovels (Qd - Qs = 104 - 89) because the quantity demanded is greater than the quantity supplied.

f. Market Situation at $58:

• The market is in shortage when the price is $58 because the quantity demanded exceeds the quantity supplied.
• Buyers are willing to buy more snow shovels than sellers are willing to sell at this price.
• This shortage will put upward pressure on the price. As buyers compete to purchase the limited supply, the price will tend to increase until it reaches the equilibrium price of $78.

In conclusion:

• The equilibrium price for snow shovels in this market is $78, and the equilibrium quantity is 68.
• When the price is above equilibrium, there is a surplus, and the price will tend to decrease.
• When the price is below equilibrium, there is a shortage, and the price will tend to increase.

I hope this explanation and breakdown help you understand the concepts and calculations involved in this microeconomics exercise!

Sample Solution

I'd be glad to help you with this microeconomics exercise on the snow shovel market. Here's a comprehensive response that incorporates explanations and calculations:

a. Drawing the Curves:

Demand Curve:

• The demand curve is represented by a downward-sloping line, reflecting the inverse relationship between price and quantity demanded.
• Plot the price on the vertical axis (P) and the quantity demanded on the horizontal axis (Q).
• Starting from the highest point (P = 150, Q = 430), mark additional points based on the equation Q = 150 - (2/3)P.
• Connect the points to form a smooth, downward-sloping line.

Supply Curve:

• The supply curve is represented by an upward-sloping line, reflecting the direct relationship between price and quantity supplied.
• Plot the price on the vertical axis (P) and the quantity supplied on the horizontal axis (Q).
• Starting from the lowest point (P = 0, Q = 2), mark additional points based on the equation Q = (3/2)P + 2.
• Connect the points to form a smooth, upward-sloping line.