Equilibrium Price and Quantity

Equilibrium Price and Equilibrium Quantity Figure l4.1 below shows the demand for Greebes and the supply of Greebes. Plot these data on the axes in Figure 14.2. Label the demand curve D and label the supply curve S. Then answer the questions that follow. Fill in the answer blanks, or underline the correct answer in parentheses. II Figure 14.1 Demand for and Supply of Greebes Price ($ per Greebe) $.15 .20 .25 .30 .35 Quantity Demanded (millions of Greebes) 300 250 200 150 100 Quantity Supplied (millions of Greebes) 100 150 200 250 300 Figure 14.2 Demand for and Supply of Greebes � lli a: CJ a: � w a: () a.. .55�-�-�-�---.----.----.----.--� .50 +---+---+----+---+---t--1---+-------, .45 .40 +- --+---+----+---+---t--t---+-------, .35+---+---+----+---+---t--t---+-------, .30 .25+---+---+----+---+---t-----,t---+-------, .20+---+---+----+---+---t------,t---+-------, .15 +---+-- -+---+---+------,--t---+------i .10 +---+---+----+---+---+------,t---t-------, .05, +---+---+---+---+------,r---t---+------1 o..___....____._____.____,___..._---'.__..____. 50 100 150 200 250 300 350 400 QUANTITY (millions of Greebes) l. Under these conditions, competitive market forces would tend to establish an equilibrium price of ____ per Greebe and an equilibrium quantity of ____ million Greebes. 2. If the price currently prevailing in the market is $0.30 per Greebe, buyers would want to buy ____ million Greebes and sellers would want to sell ____ million Greebes. Under these conditions, there would be a (shortage I surplus) of ____ million Greebes. Competitive market forces would tend to cause the price to (increase I decrease) to a price of ____ per Greebe. At this new price, buyers would now want to buy ____ million Greebes, and sellers now want to sell ____ million Greebes. Because of this change in ( price I underlying conditions), the ( demand I quantity demanded) changed by ____ million Greebes, and the million Greebes. (supply I quantity supplied) changed by 3. If the price currently prevailing in the market is $0.20 per Greebe, buyers would want to buy ____ million Greebes, and sellers would want to sell ____ million Greebes. Under these conditions, there would be a (shortage I surplus) of ____ million Greebes. Competitive market forces would tend to cause the price to (increase I decrease) to a price of ____ per Greebe. At this new price, buyers would now want to buy ____ million Greebes, and sellers now want to sell ____ million Greebes. Because of this change in (price I underlying conditions), the ( demand I quantity demanded) changed by ____ million Greebes, and the (supply I quantity supplied) changed by ____ million Greebes. 4. Lightly shade the area of consumer surplus and producer surplus. (A) If the government sets the price at $0.35 and the quantity exchanged is 100 million Greebes, what will happen to the size of the combined total of consumer and producer surplus? (B) What does this say about the market system? 5. Now, suppose a mysterious blight causes the supply schedule for Greebes to change to the following: II New Supply of Greebes Figure 14.3 Price ($ per Greebe) $.20 .25 .30 .35 Quantity Supplied (millions of Greebes) 50 100 150 200 Plot the new supply schedule on the axes in Figure 14.2 and label it S 1. Label the new equilibrium E1. Under these conditions, competitive market forces would tend to establish an equilibrium price of ____ per Greebe and an equilibrium quantity of ____ million Greebes. Compared with the equilibrium price in Question 1, we say that because of this change in (price I underlying conditions), the (supply I quantity supplied) changed; and both the equilibrium price and the equilibrium quantity changed. The equilibrium price (increased I decreased), and the equilibrium quantity (increased I decreased). Compared with the consumer and producer surpluses in Question 4, consumer surplus has (increased I decreased), and producer surplus has ( increased I decreased). 6. Now, with the supply schedule at S 1 , suppose further that a sharp drop in people's incomes as the result of a prolonged recession causes the demand schedule to change to the following: II Figure 14.4 New Demand for Greebes Price ($ per Greebe) $.15 .20 .25 .30 Quantity Demanded (millions of Greebes) 200 150 100 50 Plot the new demand schedule on the axes in Figure 14.2 and label it D 1 . Label the new equili­ brium E2. Under these conditions, with the supply schedule at S 1 , competitive market forces would tend to establish an equilibrium price of ____ per Greebe and an equilibrium quantity of ____ million Greebes. Compared with the equilibrium price in Question 5, because of this change in (price I underlyilJg conditions), the (demand I quantity demanded) changed. The equilibrium price (increased I decreased), and the equilibrium quantity (increased I decreased).