(LO 1, 2, 4, 5, 6) Table 2.18 shows the market for wool in the economy of Odessa (the quantities are in tonnes per year).

Price ($)

200 100 0

400 300 600 500 800 700 20 40 60 80 100 120 140 Quantity of wool FIGURE 2.19 Price ($) 100 200 300 400 500 600 700 Quantity Demanded 130 110 90 70 50 30 10 Quantity Demanded 2 Quantity Supplied 10 20 30 40 50 60 70 Quantity Supplied 2 TABLE 2.18

a) Plot the demand and supply curves on Figure 2.19, and label them D1 and S1. Mark the equilibrium as e1 on the graph.

b) What are the values of equilibrium price and quantity?

Equilibrium price:

Equilibrium quantity:

c) If the price of wool were $600, would there be a Surplus or shortage?

Surplus/shortage of:

Indicate the amount of the surplus or shortage on the graph.

d) Suppose that the demand were to increase by 60.

Show the new Quantity Demanded 2 in Table 2.18.

e) Draw and label the new demand curve as D2.

Mark the new equilibrium as e2 on the graph.

f) What are the new values of equilibrium price and quantity?
Equilibrium price:
Equilibrium quantity:
g) Following the change in (d), suppose that the supply were to increase by 50 percent. Show the new Quantity Supplied 2 in Table 2.18.
h) Draw and label the new supply curve as S2.
Mark the new equilibrium as e3.
i) What are the new values of equilibrium price and quantity?
Equilibrium price:
Equilibrium quantity