Problem 7 (14 points) A market research team has come up with the demand and sup
ID: 1142531 • Letter: P
Question
Problem 7 (14 points) A market research team has come up with the demand and supply schedules for gasoline in Motorville in the table above. Use these data to analyze the situation in the market for gas in Motorville. Price Quantity demanded Quantity supplied (cents per gallon) (thousands of gallons per week) (thousands of gallons per week) 290 300 310 320 330 340 350 80 70 60 50 40 30 20 20 30 40 50 60 70 a. (4 points) Using price as the vertical (y-axis) variable, and quantity demanded as the horizontal (x-axis variable), find the slope of the demand curve. (You may find it helpful to use graph paper to plot the points on the demand curve.) b. (4 points) Once again, using price as the vertical (y-axis) variable, and now quantity supplied as the horizontal (x-axis variable), find the slope of the supply curve. (You may find it helpful to use graph paper to plot the points on the supply curve)+ c. (2 points) Suppose the price is $3.30. Describe the situation in the market and explain how the market adjusts d. (2 points) Suppose the price is $3.00. Describe the situation in the market and explain how the market adjusts. e. (2 points) Find the equilibrium price and quantity in this market?Explanation / Answer
a) Slope of demand curve = change in y-axis variable / change in x-axis variable = 300-290/70-80 = -1.
b) Slope of supply curve = change in y-axis variable / change in x-axis variable = 300-290/30-20 = 1.
c) At p = 3.30, Qd = 40 and Qs = 60. Hence Qd < Qs and there is a surplus. This will create a downward pressure on the price which will therefore create competition among sellers to sell their surplus. Eventually price will reach its equilibrium level of $3.20
d)At p = 3.00, Qd = 70 and Qs = 30. Hence Qd > Qs and there is a shortage. This will create an upward pressure on the price which will therefore create competition among buyers to buy more. Eventually price will reach its equilibrium level of $3.20
e) Equilibrium price = $3.20 and quantity = 50 units.