The demand and supply schedules for potato chips are a. Draw a graph of the potato chip market a

The demand and supply schedules for potato chips are a. Draw...

Key Concepts

Surplus and Shortage

A surplus arises when the quantity supplied exceeds the quantity demanded at a given price, while a shortage happens when the quantity demanded exceeds the quantity supplied. These imbalances indicate that the current price is either too high or too low compared to the equilibrium, leading to market inefficiencies.

Demand Curve

The demand curve represents how the quantity demanded by buyers changes at various prices. Typically, it slopes downwards, indicating that as the price decreases, consumers wish to purchase more of the good. This curve is fundamental in understanding consumer behavior and market dynamics.

Supply Curve

The supply curve illustrates the relationship between the price of a good and the quantity that producers are willing to supply. Generally, it slopes upwards because higher prices incentivize producers to offer more of the good. This curve is crucial for analyzing production decisions and market availability.

Market Equilibrium

Market equilibrium occurs at the intersection of the demand and supply curves. At this point, the quantity demanded by consumers equals the quantity supplied by producers, establishing the equilibrium price and quantity. It is a central concept in understanding how markets operate efficiently.

Price Adjustment Mechanism

The price adjustment mechanism is the process by which market forces move the price toward equilibrium. When a surplus occurs, downward pressure on prices encourages increased demand and reduced supply, while a shortage drives prices up, prompting increased supply and decreased demand. This adjustment continues until the market reaches equilibrium.

Transcript

00:01 From the supply and demand schedules that were given in this problem, we can draw the supply and demand curves in the market for potato chips and then use that to figure out what the equilibrium quantity and price will be.

00:13 All right, so from this chart, we can see that there's a linear relationship between price and both quantity demanded and supplied, right? because so for every 10 cents that we increase the price, we're going to decrease our quantity demanded by 10 every time, right? 160 to 150 to 140, and then our quantity supplied will in turn increase by 10 each time.

00:35 So there's a linear relationship between price and quantity demanded and supplied, and that's why i have drawn these perfect linear curves for each supply and demand.

00:47 Right.

00:47 So over here on the right, i have two important prices and quantity, demand, and supplied that will help us determine what this equilibrium price is over here.

00:58 And the quantity down here.

01:01 So if we know, so what we're looking for, we know that equilibrium is the place where quantity supplied is equal to quantity demanded.

01:13 And so looking at this table, we actually don't see a price that has been given to us where quantity supplied equals quantity demanded.

01:22 So we have to use this linear relationship to figure out what that price may be.

01:26 So if we look here, we see we're very close to the quantity demand.

01:29 And supplied being equal, and our price increase is of 10, right? so if we're trying to make quantity demanded and supplied equal, one thing that we can do is say, well, what if quantity was 145 each, right? so let's say that we have quantity demanded of 145 and a quantity supplied of 145.

01:50 So at what price would this occur? so this is just the midpoint of each of these quantity demanded and supplied.

01:57 So the midpoint price would.

01:59 Be 65.

02:01 Right, and we can figure this out because we know that for every increase in 10, for the price, we get a decrease in 10 for the demand.

02:10 So for every increase, so since it's a one -to -one ratio, for every increase in five in the price, we'll decrease five for quantity demand it.

02:16 So we did 150 minus 5 to get 1 .45...

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