Question
The table below shows the quantity demanded and quantity supplied of instant coffee at each price level. Use the original set of data to answer
The table below shows the quantity demanded and quantity supplied of instant coffee at each price level. Use the original set of data to answer each of the following questions.
Price (R) of coffee90 450 200 | Quantity supplied | Quantity demanded |
50 | 250 | 500 |
55 | 280 | 460 |
60 | 300 | 450 |
65 | 340 | 420 |
70 | 350 | 350 |
75 | 380 | 300 |
80 | 400 | 250 |
85 | 420 | 230 |
90 | 450 | 200 |
1.1. Determine equilibrium price and quantity.
1.2. Suppose the current price in the market is R75. Is there a surplus or a shortage? How many units of surplus or shortage are there?
1.3. Suppose the current price in the market is R55. Is there a surplus or a shortage? How many units of surplus or shortage are there?
1.4. Find the price where there is a surplus of 150 units.
1.5. Find the price where there is a shortage of 250 units.
1.6. Make use of 2 separate demand- and supply graphs (i.e. one graph for question 1.6.1 and one graph for question 1.6.2) and the data provided in the table above, to illustrate the full effect of each of the following events on the equilibrium market price and output for instant coffee.
1.6.1. The price of tea, a substitute for instant coffee, falls. As a result, consumers buy 150 units of coffee less at every price.
1.6.2. The price of coffee-beans, major input in the production of instant coffee, increases. As a result, firms supply 190 units of coffee less at every price.
1.7. Suppose government decides to regulate this market and set the price at R65. Does this regulatory price represent a price ceiling or a price floor? Why? Use your demand and supply analysis to illustrate the full effect of such an intervention on the market for instant coffee.
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