Economics Exercise Topic 4.0 1. What is market equilibrium? Explain.

2. The supply equation for bath towels is Qs = 10000 + 6000P where as the demand equation is Qd = 50000 4000p. Determine the quantity supplied and demanded if the product is sold at $6. Is the market in equilibrium at this point? Show your answer with a graph.

3. Referring to question no. 2, how would the market forces (i.e. buyers and sellers) correct this situation? Explain in detail.

4. Again, referring to question no. 2, determine the quantity demanded and supplied if the product is sold at $2 each. Is the market in equilibrium at this point? Show your answer with a graph.

5. And how would the market forces correct the situation (from question 4)?

6. What should be the equilibrium price and quantity for the bath towels? (Hint: put the demand and supply equation together to solve the problem.)

7. What condition(s) must be present in the market for market forces to correct any oversupply or shortages?

8. What effect will each of the following have on the equilibrium quantity and price of Fried Noodle (show it on a graph with written explanation): a) The cost of noodles has increased b) The noodle has become more popular among its buyers c) Noodle soup is selling for a higher price, and sellers are switching to selling Noodle soup. d) Due to a recession, many people are preparing their own lunch and dinner.

e) The buyers expect Fried Noodles to go up in price in next week.

9. What will happen to the equilibrium quantity and price of Dell laptops (show it on a graph with written explanation) if: a) Both demand and supply increase b) Demand increases but supply falls c) Supply increases but demand falls d) Both demand and supply falls

EXERCISE 4.0-ANSWER

1. The state where the market is operating efficiently with no surplus or shortage. 2. Qs=46000, Qd= 26000 3. supplier will decrease the price -demand will increase -supply will decrease -the price will keep decreasing until market equilibrium reached 4. Qs=22000, Qd= 42000 5. buyers will compete with each other to raise price in order to get their product -demand will increase -supply will increase -price will keep increasing until it reached market equilibrium 6. Qs=10000 + 6000p Qd=50000 4010p 0=-40000 + 10000p 40000 = 10000p 4=p Qs=34000 Qd=34000 7. Buyers (money, freedom, etc.); Market have to be a free market; Price 8. A) Oversupply. Quantity of supply is bigger than Qd. ;Price is higher b) Demand curve shift to the right. Price increase, Quantity increase c) Supply curve shift to the right. Demand curve shift to the right

d) Both curve shift to the left. Equilibrium is the same e) Demand curve shift to the right. Supply curve shift to the left 9. A) Price remain uncertain b) price increase, Quantity is uncertain c) Price decrease, Quantity uncertain d) New equilibrium has less quantity, Price is uncertain, Quantity decrease