Refer to the table below. Fill in the surplus-shortage column (gray cells).
a. What is the equilibrium price in this market? $____
At what price is there neither a shortage nor a surplus? $____b. Graph the demand for wheat and the supply of wheat. Be sure to locate the equilibrium price and quantity.
c. draw the demand and supply curves using the data in the table. Include each price-quantity combination. Each line should contain 6 reference points. Then identify the equilibrium price and quantity.
d. How big is the surplus or shortage at $3.40?
There is a ____ shortagesurplus of ____ thousand bushels.
What if the price is $4.90? ____
There is a ____ surplusshortage of ____ thousand bushels.e. How big a surplus or shortage results if the price is 60 cents higher than the equilibrium price? __ thousand bushels.
f. How big a surplus or shortage results if the price is 30 cents lower than the equilibrium price? __ thousand bushels.
The Correct Answer and Explanation is :
I’ll first calculate the surplus or shortage for each price point and determine the equilibrium price. Then, I’ll generate the required graph and provide the detailed explanation.
Step 1: Compute Surplus or Shortage
The surplus or shortage is calculated as:
[
\text{Surplus or Shortage} = \text{Quantity Supplied} – \text{Quantity Demanded}
]
| Price per Bushel | Thousands of Bushels Demanded | Thousands of Bushels Supplied | Surplus (+) or Shortage (-) |
|---|---|---|---|
| $3.40 | 88 | 65 | -23 (Shortage) |
| $3.70 | 81 | 71 | -10 (Shortage) |
| $4.00 | 75 | 75 | 0 (Equilibrium) |
| $4.30 | 70 | 78 | +8 (Surplus) |
| $4.60 | 66 | 80 | +14 (Surplus) |
| $4.90 | 63 | 81 | +18 (Surplus) |
Thus, the equilibrium price is $4.00, where quantity demanded equals quantity supplied.
Step 2: Graph the Demand and Supply Curves
I’ll now generate the graph with the given price and quantity values.
Step 3: Answering Specific Questions
(a) What is the equilibrium price?
The equilibrium price is $4.00, where quantity demanded (75) equals quantity supplied (75).
(b) At what price is there neither a shortage nor a surplus?
The equilibrium price is $4.00.
(c) Demand and Supply Curves
The graph above visually represents the demand and supply curves using six reference points each. The equilibrium price and quantity are clearly marked.
(d) Shortage or Surplus Analysis
- At $3.40:
- Shortage of 23 thousand bushels (Demand = 88, Supply = 65)
- At $4.90:
- Surplus of 18 thousand bushels (Demand = 63, Supply = 81)
(e) Surplus or Shortage at $0.60 Above Equilibrium ($4.60)
- At $4.60:
- Surplus of 14 thousand bushels (Demand = 66, Supply = 80)
(f) Surplus or Shortage at $0.30 Below Equilibrium ($3.70)
- At $3.70:
- Shortage of 10 thousand bushels (Demand = 81, Supply = 71)
Explanation (300 words)
The equilibrium price in a competitive market is the price at which the quantity demanded equals the quantity supplied. In this wheat market, the equilibrium price is $4.00 per bushel, where both demand and supply equal 75 thousand bushels.
At lower prices, shortages occur because consumers demand more wheat than producers are willing to supply. At $3.40, there is a shortage of 23 thousand bushels as demand (88) exceeds supply (65). Similarly, at $3.70, there is a shortage of 10 thousand bushels.
Conversely, at higher prices, a surplus forms because suppliers produce more than consumers want to buy. At $4.90, there is a surplus of 18 thousand bushels (supply of 81 vs. demand of 63). A price of $4.60 results in a surplus of 14 thousand bushels.
If the price increases by $0.60 above equilibrium (to $4.60), we observe a 14-thousand-bushel surplus. If the price drops $0.30 below equilibrium (to $3.70), we see a 10-thousand-bushel shortage.
This supply-demand relationship illustrates how market forces naturally drive prices toward equilibrium. When shortages occur, prices tend to rise as consumers compete for limited goods. When surpluses arise, prices fall to clear excess stock.
Thus, $4.00 is the price at which the wheat market stabilizes, ensuring efficiency where no surplus or shortage exists.