Page 59 - Microeconomics, Fourth Edition

c02demandandsupplyanalysis.qxd 6/14/10 1:39 PM Page 33

2.1 DEMAND, SUPPLY, AND MARKET EQUILIBRIUM 33

LEARNING-BY-DOING EXERCISE 2.2
S
D
E
Sketching a Supply Curve
Suppose the yearly supply of wheat in Solution
Canada is described by the equation
(a) To find the yearly supply of wheat, given the average
s
Q 0.15 P (2.2) price per bushel, use equation (2.2):
s
where Q is the quantity of wheat produced in Canada Average Price Using Equation (2.2) Quantity
per year (in billions of bushels) when P is the average per Bushel (P) Supplied (Q )
s
price of wheat (in dollars per bushel).
s
$2 Q 0.15 2 2.15 2.15 million bushels
s
$3 Q 0.15 3 3.15 3.15 million bushels
Problem $4 Q 0.15 4 4.15 4.15 million bushels
s
(a) What is the quantity of wheat supplied per year when
the average price of wheat is $2 per bushel? When the (b) Figure 2.4 shows the graph of this supply curve. We
price is $3? When the price is $4? find it by plotting the prices and associated quantities
from part (a) and connecting them with a line. The fact
(b) Sketch the supply curve for wheat. Does it obey the that the supply curve in Figure 2.4 slopes upward indi-
law of supply? cates that the law of supply holds.

S

Price (dollars per bushel) $4

$3

$2

FIGURE 2.4 The Supply Curve for
Wheat in Canada
0 2.15 3.15 4.15 The law of supply holds in this market be-
cause the supply curve slopes
Quantity (billions of bushels per year)
upward.

MARKET EQUILIBRIUM equilibrium A point at
which there is no tendency
In Figure 2.2, the demand and supply curves intersect at point E, where the price is for the market price to
$4 per bushel and the quantity is 11 billion bushels. At this point, the market is in change as long as exoge-
equilibrium (the quantity demanded equals the quantity supplied, so the market nous variables remain
clears). As we discussed in Chapter 1, an equilibrium is a point at which there is no unchanged.