The demand for SPF 50 sunscreen is seasonal demand increases

The demand for SPF 50 sunscreen is seasonal: demand increases in summer months and decreases during winter. Consider the demand schedule for sunscreen in January. Assume supply is unchanged ANUARY Quantity Demanded Pric Quantity Supplied 0 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 70 40 10 0 0 0 0 0 0 20 40 60 80 100 120 140 160 180 e. Given the above information, determine the equilibrium price (P\') and quantity (Q\') in this market. f. Suppose now that the market price of sunscreen increases by $1.00. Determine the new quantity demanded (Qo) and quantity supplied (Qs) Is the market currently in equilibrium, surplus, or shortage? Explain your answer. g.

Solution

(e) In equilibrium, Quantity demanded equals quantity supplied.

This condition is satisfied when Q* = quantity demanded = quantity supplied = 40, at Price (P*) = $1

(b) When Price = $1 + $1 = $2,

Quantity demanded (QD) = 10

Quantity supplied (QS) = 60

(c) Since QS > QD, there is a surplus at price of $2.

Surplus = QS - QD = 60 - 10 = 50