3 Determining equilibrium market price

Chapter Three Determining equilibrium market price

Self-assessment Questions

3.1 No! By increasing the tunnel toll, quantity demanded, not demand, will be reduced.

3.2 Quantity supplied refers to the quantity a seller plans or intends to sell. Quantity sold

refers to the quantity he actually sells.

If a seller cannot sell all that he intends to sell, the actual quantity sold will be smaller

than quantity supplied.

If he can sell all that he intends to sell, the actual quantity sold will be the same as

quantity supplied.

3.3 When the price is $10 per unit, the quantity demanded is 270, which is greater than the

quantity supplied (110). The quantity transacted is the smaller of the two quantities. i.e.

the quantity supplied.

Multiple Choice Questions

1 C 2 B 3 D 4 A 5 B

2 At $1000, the quantity transacted is 16,000 units, and total revenue is $16,000,000.

New Introductory Economics 3rd Edition 4 © Pearson Education Asia Limited 2003
Suggested Solutions
 3 Determining equilibrium market price

When the market price is in equilibrium, at $1,400, the quantity transacted is 22,000

units, and the total revenue is $30,800,000.

Obviously, total revenue is not at a maximum at a price of $1,000.

3 Option (D) is the most complete definition of demand, and hence is the key.

5 Quantity demanded and quantity transacted will also be equal when the price is above

equilibrium. At this price, the quantity demanded falls short of the quantity supplied.

Short Questions

6(a) The market-clearing price is $8.

6(b) At $9, the quantity demanded is 20 units but the quantity supplied is 16 units. There

will be an excess supply of 4 units.

6(c) At $5, the quantity demanded is 28 units; the quantity supplied is 16 units; the excess

demand is 12 units, and the quantity transacted is 16 units.

7(a) The nominal price has increased.

7(b) The relative price of printing a photograph has increased, from 0.01 unit of a calculator

to 0.024 unit of a calculator.

7(c) During the last 10 years, prices of all other goods have increased by more than 20%.

New Introductory Economics 3rd Edition 5 © Pearson Education Asia Limited 2003
Suggested Solutions
 3 Determining equilibrium market price

As the price of printing a photograph has increased by just 20%, its relative price, in

terms of all other goods, has dropped.

New Introductory Economics 3rd Edition 6 © Pearson Education Asia Limited 2003
Suggested Solutions