What are the equilibrium price and the equilibrium quantity? b. Suppose the price is currently $5. Explain what problem would exist in the market and calculate the size of that problem. What would you expect to happen to price? c. Suppose the price is currently $2. Explain what problem would exist in the market and calculate the size of the problem. What would you expect to happen to price?

The question is incomplete. See the attached image for the missing table showing the demand and supply schedule.

Answer/Explanation:

a. Equilibrium price is the price at which Qd = Qs. Hence, equilibrium price = $4, while equilibrium quantity is the quantity demanded at the equilibrium price, i.e. where quantity demanded = quantity supplied. Therefore equilibrium quantity = 8,000

b. At $5, there would be excess quantity supplied, i.e. Qs · Qd = 10,000 · 6,000 = 4,000. Hence, there would be wastage of resources as a result of surplus. This would lead to decrease in price in order to avoid the wastage of resources.

c. At $2, there would be excess quantity demanded, i.e. Qd · Qs = 12,000 · 4,000 = 8,000. This would lead to increase in price as a result of acute shortage in quantity supplied.

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