Identify The Equilibrium Price by ClassOf1

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Sub: Economics                                                                         Topic: Micro Economics

Question:

Identify The Equilibrium Price

Supply and demand curves can be used to show the effects of charging market conditions. The
diagram below shows hypothetical supply and demand curves for oak flooring. Use the diagram to
answer the questions that follow.




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 *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
                              submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                         Topic: Micro Economics
        a. What is the equilibrium price as the diagram is drawn? What is the equilibrium quantity?


        b. Suppose a boom in home construction occurs, raising the demand for oak flooring. Will this
            shift the demand curve, or cause movement along the demand curve D1? If it shifts the
            demand curve, draw the new curve parallel to the old one, and passing through points D2
            or D3, whichever you think better represents the effect of the construction boom. What is
            the new equilibrium price? The new equilibrium quantity?


        c. Next suppose the improvements in sawmill technology cut the cost of producing oak
            flooring. Will this shift the supply curve or cause movement along it? If it shifts the supply
            curve, draw the new curve parallel to the old one, and passing through either S2 or S3,
            whichever you thing is appropriate. Assuming that the demand curve remains where you
            left it at the end of part b, what is the new equilibrium price? The new equilibrium
            quantity?




                           www.classof1.com/homework-help/economics
 *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
                              submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                         Topic: Micro Economics

Solution:

A. The equilibrium price is $1.2. The equilibrium quantity is 180.


B. If the boom in home construction occurs, the demand curve for housing shifts to the right. There
   will not be a movement along the demand curve. The new demand curve is shown below which
   should pass D3:




                           www.classof1.com/homework-help/economics
 *The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
                              submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                         Topic: Micro Economics
The new equilibrium price is 1.6and the new equilibrium quantity is 200


c.Improvements in technology will reduce the cost of production. The supply will increase and the
supply curve will shift top the right. It will pass through S3. This is shown in the following graph:


								
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