Question
The table sets out the demand and supply schedules for chewing gum.
|
Price
(cents per pack)
|
Quantity
demanded
|
Quantity
supplied
|
|
|
(millions of packs a week)
|
|
20
|
180
|
60
|
|
40
|
140
|
100
|
|
60
|
100
|
140
|
|
80
|
60
|
180
|
|
100
|
20
|
220
|
(a) Draw a graph of the market for chewing gum. What are the equilibrium price and quantity? Mark the equilibrium price and quantity in the graph.
(b) Suppose that the price of chewing gum is 70¢ a pack. Describe the situation in the chewing gum market (shortage or surplus and why?) and explain how the price adjusts.
(c) Suppose that the price of chewing gum is 30¢ a pack. Describe the situation in the chewing gum market (shortage or surplus and why?) and explain how the price adjusts.
(d) Suppose a fire destroys some factories that produce chewing gum and the quantity of gum supplied decreases by 40 million packs a week at each price. Explain what happens in the market for gum and illustrate the changes on your graph.