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Chapter 3

Question 15
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You must read each slide, and complete any questions on the slide, in sequence.

A. The following table gives the supply and demand for orchid leis in Hawaii.

Price ($/unit) Quantity demanded (thousands) Quantity supplied (thousands)
5 24 8
10 20 12
15 16 16
20 12 20
25 8 24

The equilibrium price of orchid leis is $ and the equilibrium quantity of orchid leis is thousand.

Correct! The market equilibrium occurs when the quantity supplied is equal to the quantity demanded at a specific price. The table shows that when the price is $15 per lei, the quantity supplied equals the quantity demanded. The equilibrium quantity is 16 thousand, and the equilibrium price is $15 per lei.
Incorrect. The market equilibrium occurs when the quantity supplied is equal to the quantity demanded at a specific price. Look for the row where the quantity demanded is the same as the quantity supplied. This occurs in the third row; there are two 16’s. Thus, the equilibrium quantity is 16 thousand, and the equilibrium price is $15 per lei.

B. Using the table above, which of the following graphs best illustrates the market equilibrium?

A.
B.
C.
D.
Correct! The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $15 and the equilibrium quantity is 16 thousand units.
Incorrect. The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $15 and the equilibrium quantity is 16 thousand units.
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      С. The following table gives the supply and demand for orchid leis in Hawaii.

      Price ($/unit) Quantity demanded (thousands) Quantity supplied (thousands)
      5 24 8
      10 20 12
      15 16 16
      20 12 20
      25 8 24

      Assume the Hawaiian lei industry now increases its use of orchids from Thailand, allowing it to increase the supply of orchids by 8,000 units at every price. Complete the table below using this new information along with the table above.


      Price ($/unit) Quantity demanded (thousands) Quantity supplied (thousands)
      5
      10
      15
      20
      25

      The new equilibrium price is $ per lei and the new equilibrium quantity is thousand.

      Excellent! The increase in supply does not affect the numbers in the quantity demanded column. The numbers in the quantity supplied column increased by 8 at every price.
      Incorrect. The increase in supply does not affect the numbers in the quantity demanded column. The numbers in the quantity supplied column increased by 8 at every price. The market equilibrium is where the demand and supply curves intersect. In this case, the equilibrium price is now $10 and the equilibrium quantity is 20 thousand units.

      D. Using the table above, which of the following graphs best illustrates the market equilibrium?

      		A.
      		B.
      		C.
      		D.
      Correct! The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $10 and the equilibrium quantity is 20 thousand units.
      Incorrect. The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $10 and the equilibrium quantity is 20 thousand units.
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          E. The following table gives the supply and demand for orchid leis in Hawaii.

          Price ($/unit) Quantity demanded (thousands) Quantity supplied (thousands)
          5 24 16
          10 20 20
          15 16 24
          20 12 28
          25 8 32

          Now assume that luxury hotels in Hawaii begin cost-cutting measures and no longer present guests with leis upon check-in. This reduces demand for orchid leis by 8,000 units at every price. Complete the table below using this new information.


          Price ($/unit) Quantity demanded (thousands) Quantity supplied (thousands)
          5
          10
          15
          20
          25

          The new equilibrium price is $ per lei and the new equilibrium quantity is thousand.

          Excellent! The decrease in demand does not affect the numbers in the quantity supplied column. The numbers in the quantity demanded column decrease by 8 at every price.
          Incorrect. The decrease in demand does not affect the numbers in the quantity supplied column. The numbers in the quantity demanded column decrease by 8 at every price. The market equilibrium occurs when the quantity supplied is equal to the quantity demanded at a specific price. In this case, the new equilibrium occurs at the price of $5 and quantity 16 thousand.

          F. Using the table above, which of the following graphs best illustrates the new market equilibrium?

          		A.
          		B.
          		C.
          		D.
          Correct! The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $5 and the equilibrium quantity is 16 thousand units.
          Incorrect. The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $5 and the equilibrium quantity is 16 thousand units.
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              G. The following table gives the supply and demand for orchid leis in Hawaii.

              Price ($/unit) Quantity demanded (thousands) Quantity supplied (thousands)
              5 16 16
              10 12 20
              15 8 24
              20 4 28
              25 0 32

              Now assume that severe monsoons and civil unrest in Thailand lead to a reduction in orchid production by an amount equivalent to 8,000 orchid leis supplied at every price. Complete the table below using this new information.


              Price ($/unit) Quantity demanded (thousands) Quantity supplied (thousands)
              5
              10
              15
              20
              25

              The new equilibrium price is $ per lei and the new equilibrium quantity is thousand.

              Excellent! The decrease in supply does not affect the numbers in the quantity demanded column. The numbers in the quantity supplied column decrease by 8 at every price.
              Incorrect. The decrease in supply does not affect the numbers in the quantity demanded column. The numbers in the quantity supplied column decrease by 8 at every price. The market equilibrium occurs when the quantity supplied is equal to the quantity demanded at a specific price. Thus, the new equilibrium occurs at the price of $10 and the quantity of 12 thousand.

              H. Using the table above, which of the following graphs best illustrates the new market equilibrium?

              		A.
              		B.
              		C.
              		D.
              Correct! The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $10 and the equilibrium quantity is 12 thousand.
              Incorrect. The market equilibrium is where the demand curve intersects the supply curve. In this example, the equilibrium price is $10 and the equilibrium quantity is 12 thousand.
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