MARKET EQUILIBRIUM POLICY INCLASS WORKSHEET 1 This question

MARKET EQUILIBRIUM & POLICY

IN-CLASS WORKSHEET 1

This question examines the market for coffee. You will use the formulas for a demand and supply curve to identify the quantity of coffee demanded and the quantity of coffee supplied at different prices.

Below, you have the formulas for the demand curve and the supply curve for pounds of coffee. If you plug any price into the formula for the demand function, you get the quantity demanded at that price. If you plug any price into the supply function, you get the quantity supplied at that price.

The Demand Function for coffee:

Q = 12 ? P

The Supply Function for coffee

                          Q = 2P

Task 1: Use the table below to find the quantity demanded and the quantity supplied of pounds of coffee at each price.

Price

(per pound of coffee)

Quantity of Coffee Demanded

(pounds)

Quantity of Coffee Supplied

(pounds)

$ 2

4

    4

8

    6

12

    8

10

2

Task 2: Identify the equilibrium price of a pound of coffee.

Task 3: At a price of $2, is there a shortage or surplus of coffee? How many pounds?

Task 4: At a price of $10, is there a shortage or surplus of coffee? How many pounds?

Solution

Equilibrium price = $ 4 (Qd = Qs at this price)

When P = $ 2, Qd > Qs , there is a shortage = 10 - 4 = 6 pounds

When P = $10, Qs > Qd , there is a surplus = 20 - 2 = 18 pounds