36 figure 31 b quantity supplied equals quantity

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Figure 31 b. Quantity supplied equals quantity demanded at a price of $8. The equilibrium quantity is 8,000 tickets. c. Price Quantity Demanded Quantity Supplied $ 4 14,000 8,000 8 11,000 8,000 12 8,000 8,000 16 5,000 8,000 20 2,000 8,000 The new equilibrium price will be $12, which equates quantity demanded to quantity supplied. The equilibrium quantity is 8,000 tickets. 12. The executives are confusing changes in demand with changes in quantity demanded. Figure 32 shows the demand curve prior to the marketing campaign ( D 1 ), and after the campaign ( D 2 ). The marketing campaign increased the demand for champagne, as shown, leading to a higher equilibrium price and quantity. The influence of the higher price on demand is already reflected in the outcome. It is impossible for the scenario outlined by the executives to occur. Figure 32 13. Equilibrium occurs where quantity demanded is equal to quantity supplied. Thus: Q d = Q s 1,600 – 300P = 1,400 + 700P 200 = 1,000P P = $0.20 Q d = 1,600 – 300(0.20) = 1,600 – 60 = 1,540 Q s = 1,400 + 700(0.20) = 1,400 + 140 = 1,540. The equilibrium price of a chocolate bar is $0.20 and the equilibrium quantity is 1,540 bars. 37
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14. A perfectly competitive market is a market where there are many buyers and sellers of an identical product. No buyer or seller has the ability to influence the price of the product. No, ice cream is probably not a very good example of a perfectly competitive market. Each competitor sells a product that may taste differently or may come in a different variety of flavors. The market for ice cream is better characterized as a monopolistically competitive market. Chapter 5 Quick Quizzes 1. The price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price. The relationship between total revenue and the price elasticity of demand is: (1) when demand is inelastic (a price elasticity less than 1), a price increase raises total revenue, and a price decrease reduces total revenue; (2) when demand is elastic (a price elasticity greater than 1), a price increase reduces total revenue, and a price decrease raises total revenue; and (3) when demand is unit elastic (a price elasticity equal to 1), a change in price does not affect total revenue. 2. The price elasticity of supply is a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price. The price elasticity of supply might be different in the long run than in the short run because over short periods of time, firms cannot easily change the size of their factories to make more or less of a good. Thus, in the short run, the quantity supplied is not very responsive to the price. However, over longer periods, firms can build new factories, expand existing factories, or close old ones, or they can enter or exit a market. So, in the long run, the quantity supplied can respond substantially to the price.
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