Suppose the total demand for wheat and the total supply of...

Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the accompanying table. a. What is the equilibrium price? What is the equilibrium quantity? Fill in the surplus-shortage column and use it to explain why your answers are correct. b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equilibrium price $P$ and equilibrium quantity $Q.$ (TABLE CAN'T COPY) c. Why will 3.40 dollar not be the equilibrium price in this market? Why not 4.90 ? dollar "Surpluses drive prices up; shortages drive them down." Do you agree?

Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the accompanying table.
a. What is the equilibrium price? What is the equilibrium quantity? Fill in the surplus-shortage column and use it to explain why your answers are correct.
b. Graph the demand for wheat and the supply of wheat. Be sure to label the axes of your graph correctly. Label equilibrium price $P$ and equilibrium quantity $Q.$ (TABLE CAN'T COPY)
c. Why will 3.40 dollar not be the equilibrium price in this market? Why not 4.90 ? dollar "Surpluses drive prices up; shortages drive them down." Do you agree?

Key Concepts

Surplus and Shortage

A surplus occurs when the quantity supplied exceeds the quantity demanded at a given price, creating pressure for prices to fall. Conversely, a shortage happens when the quantity demanded exceeds the quantity supplied, putting upward pressure on prices. This concept is key to understanding the dynamics that drive the market toward equilibrium, as excess supply or demand triggers price adjustments.

Price Adjustments and Disequilibrium

When prices are set away from the equilibrium – either above or below – economic forces lead to surpluses or shortages. For instance, a price set too high results in a surplus, while a price set too low causes a shortage. The market then naturally adjusts, increasing or decreasing prices until the equilibrium is restored. This mechanism explains why non-equilibrium prices, such as $3.40 or $4.90 in the example, cannot persist in a competitive market.

Market Equilibrium

Market equilibrium occurs when the quantity demanded by consumers equals the quantity supplied by producers at a specific price. This is the point where the market 'clears', meaning there is no inherent tendency for the price to change, as the forces of supply and demand are balanced. It is a foundational concept in economics because it determines the stable state of a market without any external interventions.

Supply and Demand

Supply represents the quantity of a good or service that producers are willing and able to sell at different prices, while demand represents the quantity that consumers are willing and able to buy. The interaction of these two curves on a graph shows how prices and quantities adjust in a market. Understanding both demand and supply is crucial to determining the equilibrium point and explaining market behaviors.

Transcript

00:01 Suppose that the total demand for wheat and total supply for wheat per month in the kansas city green market are shown in the table.

00:08 Now, the first question was to find the equilibrium price, equilibrium quantity, and were to fill the shortage, the supply to shortage column, and use it to explain why your answers are correct.

00:21 So, first of all, pe is equal to $4 ,000, and q of e is equal to $75 ,000.

00:36 So therefore a quibum occurs where there is neither a shortage or surplus of wheat right so at the immediate lower price of 3 .70 at price of 3 .70 there is a shortage of 7 ,000 bushels right and at the immediate higher price of 4 .30 dollars there is a surplus according to the table there's a surplus of 7 ,000 bushels so so the market equilibrium will be where the demand is equal to supply and when the price is four that's why the quantity demanded is equal to the quantity supplied because the quantity demanded is 75 and the quantity supply is 752 so when the price is for quantity supply is equal to quantity demanded so that's where the um there's surplus or shortage so that's where the equilibrium will be equilibrium price is four dollars an equilibrium quantity is equal to 75 bushels and is in thousand so now moving on to the next question so the next question wants us to graph the demand for wheat and the supply of weight and label the axis of the graph correctly and label the equilibrium price and the equilibrium quantity so for that you'll be the demand and supply curve so this side is the quantity in thousands of bushels and i forgot to mention that this is in thousand so so quantity in thousands of bushels and this side is the price per bushel so this side goes from one to four and that's four and this side goes from zero to hundred so this is where the q would be and this is where the p would be.

04:20 So this joins and come all the way to 80...

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