Question

Answer the questions below by explaining step by step
Activity


Price per Unit ($) Quantity Demanded (kg) Quantity Supplied (Kg)
200 20 02
650 14 04
1,200 09 10
1,700 05 16
2,000 02 24

a) Draw the demand and supply curves on the same graph.
b) Deter mine the equilibrium price and quantity.
c) Suppose the government set a price at $ 1,000, describe the situation as well as price adjustment that take place in the market.

Answer 1

To tackle these questions step-by-step, we will analyze the demand and supply data provided to us. Here’s the breakdown:

### a) Draw the Demand and Supply Curves

1. **Identify the Data:**
- Demand Data:
- At $200: Quantity Demanded = 20 kg
- At $650: Quantity Demanded = 14 kg
- At $1,200: Quantity Demanded = 9 kg
- At $1,700: Quantity Demanded = 5 kg
- At $2,000: Quantity Demanded = 2 kg
- Supply Data:
- At $200: Quantity Supplied = 2 kg
- At $650: Quantity Supplied = 4 kg
- At $1,200: Quantity Supplied = 10 kg
- At $1,700: Quantity Supplied = 16 kg
- At $2,000: Quantity Supplied = 24 kg

2. **Create a Graph:**
- Plot the demand curve using the Demand Data:
- The x-axis will represent the quantity (kg).
- The y-axis will represent the price ($).
- Mark the points for each price and connect them smoothly to show the demand curve, which will slope downwards from left to right.

- Plot the supply curve using the Supply Data:
- Again, the x-axis will represent the quantity (kg).
- The y-axis will represent the price ($).
- Mark the points for the prices and quantities supplied, connecting them to form the supply curve, which will slope upwards from left to right.

3. **Label Axes and Curves:**
- Clearly label the x-axis as "Quantity Demanded/Supplied (kg)" and the y-axis as "Price ($)".
- Label the demand curve (D) and the supply curve (S).

### b) Determine the Equilibrium Price and Quantity

1. **Find Equilibrium:**
- The equilibrium price is where the quantity demanded equals the quantity supplied. In this case, we look for the point where the two curves intersect.

2. **Check the Provided Data:**
- Check quantities at various prices:
- At $1,200: Quantity Demanded = 9 kg, Quantity Supplied = 10 kg (not at equilibrium)
- At $1,700: Quantity Demanded = 5 kg, Quantity Supplied = 16 kg (not at equilibrium)
- The closest match occurs between $1,200 and $1,700, where quantity demanded and supplied are almost equal.

3. **Estimate Equilibrium:**
- Since there is no exact intersection in the provided data, we can estimate equilibrium exists between the two prices. Thus, the equilibrium price is between $1,200 and $1,700, and the equilibrium quantity is around 9-10 kg.

### c) Government Price Setting at $1,000

1. **Analyze Market Response:**
- At a price of $1,000, we check the quantity demanded and supplied:
- Looking at the data for price $1,000, since there’s no exact data point, we can interpolate:
- As the price moves from $650 (Quantity Demanded = 14 kg) to $1,200, we expect Quantity Demanded at $1,000 to be more than 9 kg but less than 14 kg.
- For Supply: Based on the data, the quantity supplied would still be less than 10 kg since it’s lower than the next supplied data point at $1,200.

2. **Calculate Surplus or Shortage:**
- Estimate Quantity Demanded ≈ 11-12 kg and Quantity Supplied ≈ around 5 kg. Thus at $1,000, we’d have a shortage of 10-12 kg - 5 kg = 6-7 kg.

3. **Price Adjustment:**
- Due to the shortage, there will be upward pressure on prices. Suppliers will likely increase prices because there are more buyers than there are goods available. Eventually, price adjustments by sellers will continue until they reach the equilibrium point around $1,200 or $1,700 to balance the market.

### Conclusion:

In summary, by following through these steps, we have drawn the demand and supply curves, found the equilibrium price and quantity, and analyzed market reactions when the government sets a price of $1,000.