A stationery shop records the following demand and supply schedule for a particular type of notebook, showing the quantity buyers want to purchase and the quantity sellers want to offer each week at different prices. Price ($) Quantity demanded (packs per week) Quantity supplied…

Answer: ((a)) Market equilibrium is the price at which quantity demanded exactly equals quantity supplied; from the table this is $3.00, where both quantity demanded and quantity supplied equal 300 packs per week ((b)) At $2.50, quantity demanded (400 packs) is greater than quantity supplied (200 packs), so there is a shortage of 200 packs per week ((c)) Because there is a shortage at $2.50, some buyers cannot get the notebooks they want at that price, so they compete with each other and bid the price up; as price rises, quantity demanded falls (a contraction in demand) and quantity supplied rises (an extension in supply), until…. Part (a): Defining and finding equilibrium Market equilibrium is the price at which the quantity that buyers want to purchase exactly equals the quantity that sellers want to offer. That is, quantity demanded (Qd) = quantity supplied (Qs).…

IGCSE Economics 0455: Equilibrium, Shortage and Price Adjustment in a Notebook Market

Price ($)	Quantity demanded (packs per week)	Quantity supplied (packs per week)
2.00	500	100
2.50	400	200
3.00	300	300
3.50	200	400
4.00	100	500

Price ($)

Quantity demanded (packs per week)

Quantity supplied (packs per week)

2.00

500

100

2.50

400

200

3.00

300

3.50

200

400

4.00

100

500

Part (a): Defining and finding equilibrium

Market equilibrium is the price at which the quantity that buyers want to purchase exactly equals the quantity that sellers want to offer. That is, quantity demanded (Qd) $=$ quantity supplied (Qs).

Checking each row of the table:

Price	Qd	Qs
$2.00	500	100
$2.50	400	200
$3.00	300	300
$3.50	200	400
$4.00	100	500

Only at $3.00 does quantity demanded equal quantity supplied, both at 300 packs per week. This is the equilibrium price and equilibrium quantity.

Part (b): Identifying the shortage at $2.50

At $2.50, from the table:

Quantity demanded $= 400$ packs per week
Quantity supplied $= 200$ packs per week

Since quantity demanded is greater than quantity supplied, there is a shortage (excess demand): $400 - 200 = 200 \text{ packs per week}$

Part (c): How price adjusts back to equilibrium

At $2.50, the shortage of 200 packs per week means many buyers who want a notebook cannot get one at that price. To secure a pack, some of these buyers are willing to pay more, so competition among buyers bids the price upward.

As price rises above $2.50:

Quantity demanded falls, a contraction in demand, as fewer buyers are willing to pay the higher price.
Quantity supplied rises, an extension in supply, as the shop is willing to offer more notebooks at the higher price.

This process continues until price reaches $3.00, where quantity demanded and quantity supplied are both 300 packs per week and the shortage has been eliminated. At that point there is no further pressure for price to change, so the market has reached equilibrium.

Final answers

(a) Market equilibrium is where quantity demanded $=$ quantity supplied; here, equilibrium price $=$ $3.00, equilibrium quantity $=$ 300 packs per week.
(b) At $2.50 there is a shortage of 200 packs per week (400 demanded vs. 200 supplied).
(c) The shortage bids price upward from $2.50; demand contracts and supply extends along the existing curves until price reaches $3.00, where the shortage disappears.