note: please hand write your answers on a sheet of paper and upload them to canvas. you may scan them or…
note: please hand write your answers on a sheet of paper and upload them to canvas. you may scan them or take a picture. please make sure your writing is legible/readable and your images are clear. alternatively, you may also type your answers however many of the questions require you to use illustrations to make your points. jpg or pdf file format only!\ni. graph both the demand and supply curve together and identify the equilibrium price and quantity.\nii. define what an equilibrium represents. how do you know if a market is in equilibrium? provide an example.\niii. graph both the demand and supply curve together. graph and identify the impact of a price floor of $2.00. explain what will happen to gasoline in this market.\niv. graph both the demand and supply curve together. graph and identify the impact of a price floor of $1.20. explain what will happen to gasoline in this market.\nv. define what a price floor and price ceiling is? provide an example of each.\nvi. using your graph from part i, show graphically the impact of a shift in demand to the right. what will happen to the price and quantity?\nvii. using your graph from part i, show graphically the impact of a shift in demand to the left (simultaneously). what will happen to the price and quantity?
Answer
Brief Explanations:
- Equilibrium Definition: Equilibrium in a market occurs where the quantity demanded equals the quantity supplied. Graphically, it is the intersection point of the demand and supply curves. For example, in the gasoline market, if at a certain price the amount consumers want to buy is the same as the amount producers want to sell, that's the equilibrium.
- Demand - Supply Graphing: The demand curve is downward - sloping, showing that as price decreases, quantity demanded increases. The supply curve is upward - sloping, indicating that as price increases, quantity supplied increases. Plotting these curves together helps identify equilibrium.
- Price Floor and Ceiling: A price floor is a minimum price set above the equilibrium price. For a gasoline price floor of $2.00, if it's above the equilibrium, it will lead to a surplus as quantity supplied will be greater than quantity demanded. A price ceiling is a maximum price set below the equilibrium price. It will cause a shortage as quantity demanded will exceed quantity supplied.
- Shift in Curves: A right - shift in demand (e.g., due to an increase in consumer income or a rise in the price of a substitute) will increase both the equilibrium price and quantity. A left - shift in supply (e.g., due to higher production costs) will increase the equilibrium price and decrease the equilibrium quantity.
Answer:
- An equilibrium in a market is where the demand and supply curves intersect, representing the price and quantity at which the quantity demanded equals the quantity supplied. For example, in the gasoline market, if at a price of $1.50 per gallon, 800 million gallons are demanded and 800 million gallons are supplied, then $1.50 is the equilibrium price and 800 million gallons is the equilibrium quantity.
- The demand curve is downward - sloping because of the law of demand (as price decreases, quantity demanded increases). The supply curve is upward - sloping due to the law of supply (as price increases, quantity supplied increases). When graphed together, their intersection gives the equilibrium.
- A price floor is a legal minimum price. A $2.00 price floor in the gasoline market, if above the equilibrium, will lead to a surplus as producers will want to supply more than consumers demand at that price. A price ceiling is a legal maximum price. If set below the equilibrium in the gasoline market, it will cause a shortage as consumers will demand more than producers are willing to supply at that price.
- A right - shift in demand (e.g., more people start using cars) will increase the equilibrium price and quantity. A left - shift in supply (e.g., oil refineries face production issues) will increase the equilibrium price and decrease the equilibrium quantity.