Market Equilibrium and Price Changes: Question 1
Syllabus 2.4, 2.5
A homeware shop records the following demand and supply schedule for insulated water bottles, showing the quantity that buyers want to purchase and the quantity that sellers want to offer at different prices.
| Price ($) | Quantity demanded (thousand bottles per month) | Quantity supplied (thousand bottles per month) |
|---|---|---|
| 5 | 100 | 20 |
| 7 | 80 | 40 |
| 9 | 60 | 60 |
| 11 | 40 | 80 |
At which price is the market for insulated water bottles in equilibrium?
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Worked solution
Step 1: Recall what equilibrium means in a schedule
The market is in equilibrium at the one price where quantity demanded (Qd) exactly equals quantity supplied (Qs). At any other price, the two quantities are unequal and the market is in disequilibrium.
Step 2: Check each row of the table
| Price | Qd | Qs | Comparison |
|---|---|---|---|
| $5 | 100 | 20 | Qd > Qs (shortage) |
| $7 | 80 | 40 | Qd > Qs (shortage) |
| $9 | 60 | 60 | Qd = Qs |
| $11 | 40 | 80 | Qs > Qd (surplus) |
Only at $9 does quantity demanded (60 thousand bottles per month) exactly equal quantity supplied (60 thousand bottles per month).
Step 3: Rule out the other options
- At $5 and $7, quantity demanded is still greater than quantity supplied, so a shortage remains. These are not equilibrium prices.
- At $11, quantity supplied is greater than quantity demanded, so there is a surplus rather than equilibrium.
Final answer
The market for insulated water bottles is in equilibrium at a price of $9, where 60 thousand bottles per month are both demanded and supplied, option C.