Example below for Question 2.2

Question below-

Learning Objective: Total: 35 points Identify the determinants of supply and demand; demonstrate the impact of shifts in both market supply and demand curves on equilibrium price and output. **Page 1,2 is example. Solve question on Page 3.** Temporary Disequilibrium: Shortage/Surplus Surplus: Quantity supplied is more than quantity demanded Shortage: Quantity demanded is more than quantity supplied 1 Example $P S P2 = 100 Diagram shown at the left illus- trates coffee market equilibrium and disequilibrium at Cool Town. (Note: Graph is not drawn to scale) P* = 30 P = 10 P: Price ($) Q: Quantity (pounds) P*,Q: Market equilibrium S: Supply, D: Demand Q 0 5 20 Q* = 35 40 60 At how much and what quantity is the market at equi- librium? ? At P* = 30 (price on the y axis) and Q* = 35 (quantity on the x axis) When coffee price is at $50 per pound, is the market facing shortage or surplus? How many pounds of coffee is the market short of/in excess? (15 points)