Graph A New Equilibrium:
Y axis represents Quantity (hours per semester) 0, 25, 50, 75, 100, 125, 150
X axis represents Price of Tutoring (per hour) 0, 5, 10, 15, 20, 25, 30, 35, 40, 45, $50
Question:
Determine the approximately size of market surplus or shortage that would exist at a price of
(a) $40 (b) $20
To determine the size of the market surplus or shortage at a specific price, we need to plot the supply and demand curves on the graph and find the equilibrium point.
Before we start, we'll assume that the supply and demand curves are linear and intersect at a point. This assumption allows us to easily determine the equilibrium price and quantity.
Step 1: Plotting the Supply Curve
- On the graph, find the price of tutoring on the x-axis and locate $40.
- From this point, draw a straight line upward until you reach the quantity of tutoring on the y-axis.
Step 2: Plotting the Demand Curve
- On the graph, find the price of tutoring on the x-axis and locate $40.
- From this point, draw a straight line downward until you reach the quantity of tutoring on the y-axis.
Step 3: Finding the Equilibrium
- The equilibrium is the point where the supply and demand curves intersect.
- Locate the point where the supply and demand curves intersect. This point represents the equilibrium price and quantity.
Step 4: Determining the Market Surplus or Shortage
- To determine the market surplus or shortage at a specific price, we compare the equilibrium quantity with the actual quantity demanded or supplied at that price.
- For (a) $40:
- If the quantity supplied at $40 exceeds the quantity demanded, there is a surplus. The surplus would be the difference between the quantity supplied and the quantity demanded.
- If the quantity demanded at $40 exceeds the quantity supplied, there is a shortage. The shortage would be the difference between the quantity demanded and the quantity supplied.
- For (b) $20:
- Repeat the steps above to determine the market surplus or shortage at a price of $20.
By following these steps and plotting the supply and demand curves, you should be able to determine the size of the market surplus or shortage at each given price.