Supply and Demand - Market Equilibrium Example and Graph

RUNNING HEAD: Supply and Demand and Market Equilibrium, Assignment #2

Assignment Two

Supply and Demand- Market Equilibrium

Managerial Economics

11/6/2010

Market Structure: Supply and Demand and Market Equilibrium, Assignment #2 ABSTRACT This is the second assignment for Managerial Economics and Globalization, ECO 550. The assignment is to consider the following problem: An office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to office maintenance firms, and both technology and labor requirements are very basic. Supply and demand conditions in this competitive service market in New York are: QS = 2P – 20

(Supply)

QD = 80 - 2P

(Demand)

1. Algebraically determine the market equilibrium price and output combination. 2. Use a graph to confirm your answer. For the graph, use price (P) values of 10, 20, 30, 40, and 50 to determine quantities demanded and quantities supplied.

Market Structure: Supply and Demand and Market Equilibrium, Assignment #2

ASSIGNMENT TWO, PART ONE

Algebraically determine the market equilibrium price and output combination based on the following equations: QS = 2P – 20

(Supply)

QD = 80 - 2P

(Demand)

Where Q is thousands of hours of floor reconditioning per month, and P is the price per hour.

To solve this equation, I first set up the equation so that supply and demand were equal to each other and then solve for the equilibrium price and quantity so, QS = QD This translates to:

2P-20=80-2P

Then I worked the problem by combining where possible so: 4P = 100 And then dividing I can see that

P=25, Therefor the Equilibrium price is 25 Dollars

Then I replace the variable in the equations provides so that: QS= 2*(25) – 20 = QS =50-20 ,

QS = 30

QD=80-2*(25)

QD = 30

= QD= 80- 50,

Answer: From above I can see that when there is 30 thousand hours of floor reconditioning each month in New York city the market is in equilibrium and the price for the services will be $25 dollars per hour

ASSIGNMENT TWO, PART TWO

Market Structure: Supply and Demand and Market Equilibrium, Assignment #2 Use a graph to confirm your answer. For the graph, use price (P) values of 10, 20, 30, 40, and 50 to determine quantities demanded and quantities supplied. Now that I have determined the market price when supply and demand is equal I can graph it using excel. (See other attachment submitted with assignment). First I input the price levels that were asked to be used in the assignment, the using the Supply and demand equations I put them in the cells to the right of the price. Finally I used the auto fill feature to copy the formula to the four other price levels. I came up with the information below.

Price(P ) 10 20 30 40 50

Q Qd s 60 40 20 0 -20

0 20 40 60 80

Next I used the Charting wizard to plot a scatter graph of the data, this allowed me to show the inverse relationship between the supply and demand.

SUMMARY In summary the graph shows that market equilibrium occurs when the price is $25 dollars per hour and 30 thousand hours of window cleaning will be completed each month in New York City. The only problem I had was trying to get the price to show up on the vertical axis and the number of hours in thousands to show up on the horizontal. I am using Office 2010 and while I like the new graphing features, I miss the traditional chart wizard that was in earlier products. Have a great week professor!

Market Structure: Supply and Demand and Market Equilibrium, Assignment #2

REFERENCES: Farnham, Paul. “Economics for Managers”. 2010 Customer Edition. Pearson Learning Solutions. Boston, MA. 2010