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The market for pizza has the following demand and supply schedules:
a. Graph the demand and supply curves. What are the equilibrium price and quantity in this market?
b. If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium?
c. If the actual price in this market were below the equilibrium price, what would drive the market toward the equilibrium?
♦ Relevant knowledge
Supply and Demand is the amount of a particular product that an individual producer will offer to the market for sale at an agreed price. The curve of demand is upward-sloping. Demand indicates the capability and willingness of the buyer to purchase a product. Its curve slopes downwards.
(a) We can plot the quantity required and the quantity offered at different price levels to get the demand curve.
Equilibrium is where demand curves and supply curves intersect.
Hence, Equilibrium price=$6 And Equilibrium quantity =81 pizzas.
(b) If the equilibrium price was higher than the actual price, that is price above $6, then quantity supplied will exceed demand, so suppliers would lower the price in order to increase sales. Markets tend to move towards equilibrium.
(c) If the equilibrium price, i.e. price below $6, is lower than the actual price, then the quantity required would exceed the quantity of supply, so suppliers can raise the price and not lose sales. In either case, the price will continue to adjust until it reaches $6, when there is neither surplus nor shortage.