Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity.

 Price \$ Quantity Demanded Quantity Supplied \$5 6,000 10,000 \$4 8,000 8,000 \$3 10,000 6,000 \$2 12,000 4,000 \$1 14,000 2,000

What are the equilibrium price and the equilibrium quantity?

From the graph, the equilibrium price is \$4 while the equilibrium quantity is 8,000 units.

Suppose the price is currently \$5. What problem would exist in the market? What would you expect to happen to price?

When the price is set at \$ 5, the market will experience excess supply of goods and services. It means that the amount of goods produced is too much and also too little is being purchased by the consumers hence resulting to allocative inefficiency. In such scenario, the suppliers are producing more goods so that they could sell and make more profit. However, due to the high prices, the consumers find the goods to less attractive hence they purchase less (Hussain, 2010). The price is expected to reduce to equilibrium whereby the goods will be affordable to the consumers

Suppose the price is currently \$2. What problem would exist in the market? What would you expect to happen to price?

When the price is set at \$2, the market will experience excess demand of goods and services. Since the prices of goods are low, too much is demanded by the consumers while the producers are supplying less because they do not make profit from it (Hussain, 2010). The price is expected to rise due to the high demand and the suppliers will want to supply more goods hence the price will come closer to equilibrium.

Consider supply and demand for Maine lobsters indicated in the following tables to answers questions from a –d below. Suppose that the supply schedule of Maine lobsters is as follows:

First, assume that Maine lobsters can be sold only in the United States. The U.S. demand schedule for Maine lobsters is as follows:

 Price of Lobster USA Quantity of Lobster Demanded Marine Quantity of Lobster Supplied \$25 200 800 \$20 400 700 \$15 600 600 \$10 800 500 \$5 1,000 400

Looking at both the schedules of supply and demand, as well as the graph of the demand and supply curve for Maine Lobsters, what is the equilibrium price of lobsters and the equilibrium quantity of lobsters demanded and supplied at that price?

The equilibrium price for Marine Lobster is \$15 while the equilibrium quantity demanded and supplied is 600 pounds.

Second, suppose that Maine lobsters can also be sold in France. The French demand schedule for Maine lobsters is as follows: What is the demand schedule for Maine lobsters now that French consumers can also buy them?

 Price of lobster (per pound) Quantity supplied (pounds) USA quantity of lobster demanded (pounds) France quantity of lobster demanded (pounds) Total quantity demanded (pounds) \$ 25 800 200 100 300 \$20 700 400 300 700 \$15 600 600 500 1,100 \$10 500 800 700 1,500 \$5 400 1,000 900 1,900

Using the combined U.S. and French demand schedule, the U.S. demand schedule and the supply schedule, and the graph below, analyze the change in the market for lobsters. What will happen to the price at which fishermen can sell lobster?

The fishermen can sell lobster at the new equilibrium price that is \$20 per pound while the new equilibrium quantity is 700 pounds. On the graph, the equilibrium price and quantity is represented by point E whereby the supply curve intersects with the US and France demand. The Marine fishermen will benefit by selling to the French consumers since they will sell more and at higher price than before.

What will be the final output of lobsters?

The final output will be 700 pounds. The USA demand 400 pounds while France demand 300 pounds.

Price of Lobster USA Quantity of Lobster Demanded USA and France Quantity of Lobster Demanded Marine Quantity of Lobster Supplied
\$25 200 300 800
\$20 400 700 700
\$15 600 1,100 600
\$10 800 1,500 500
\$5 1,000 1,900 400

What will happen to the price paid by U.S. consumers? What will happen to the quantity consumed by U.S. consumers?

The US consumers pay higher price for lobster. They pay \$ 20 rather than \$15 per pound. Therefore, they are made worse off hence they end up consuming less amount of lobster that is \$400 pounds rather than \$600 pounds.

Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish.

Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain.

Atlantis cannot produce 500 pounds of fish and 800 pounds of potatoes. It is because from the graph, the point of intersection (point b) is outside the available resources.

What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?

From the graph, it is clear that from 600 to 800 the difference is 200 pounds of potatoes. Similarly, it will require moving from 500 to 300 pounds of fish. Therefore, it means that the opportunity cost is 200 pounds of fish.

What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds?

From the graph, it requires 200 pounds of potatoes to move from 200 to 400 pounds. Similarly, the action requires moving from 650 to 600 pounds of fish. Therefore, the opportunity cost is 50 pounds of fish.

Can you explain why the answers to parts b and c are not the same?

The answers are not the same because, when you increase each additional pounds of potatoes, it costs more pounds of fish than what the previous pounds of potatoes cost. The opportunity cost of the first 200 pounds of potatoes is 50 pounds of fish. Also, the opportunity cost of third 200 pounds of potatoes is 200 pounds of fish. Therefore, from the explanation, potatoes show an increasing marginal cost compare to fish.

What does this imply about the slope of the production possibility frontier?

The production possibility curve portrays an increasing marginal cost of potatoes compared to fish. Therefore, the production possibility frontier has an increasing slope that slopes downwards. It slopes to the right while bulging outwards.

Reference

Hussain, T. (2010). Engineering Economics. Laxmi Publications, Ltd..

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