The table below shows the demand and supply of coats in CedarsVille.

a. What is the equilibrium price of coats?

b. Will a shortage or surplus occur?

c. At what price will the most coats sold be sold?

d. The mayor of CedarsVille in order to "help the poor by making coats cheaper", imposes a price ceiling of $40. How many coats will be bought and sold? Will a surplus or shortage of coats occur?

e. The mayor of CedarsVille, in order to "help protect our coat industry," imposes a price floor of $80 instead. How many coats will be bought and sold? Will a shortage of coats or surplus occur?

 

Price	Quantity of Coats demanded (per day)	Quantity of Coats Supplied (per day)
$80	50	110
$70	60	90
$60	70	70
$50	80	50
$40	90	30

a. The equilibrium price of the coats will be $60, since at this price the quantity demanded is equal to quantity sold at 70 units of output.

b. If the free market forces are allowed to work, the demand and supply curve will adjust itself to the point of equilibrium in the market. At the equilibrium point the quantity demanded will be equal to quantity supplied and there will be no shortage or surplus in the market.

c. Demand is inversely related to the price of the good. So when the price is low, the quantity demanded will be high. In this case, the most amount of costs will be sold at a price of $40, where 90 units of coats will be sold.

d. When a price ceiling of $40 is imposed, the quantity demanded will be greater than the quantity supplied. We see that at $40, 90 units will be demanded by the consumers and 30 units will be sold by the producers. So there will be a shortage of 60 units in the market.

e. When a price floor of $80 is imposed, the quantity supplied will be greater than the quantity demanded in the market. It can be seen that, at 80, 50 units will be demanded by the consumers and 110 units will be supplied by the producers. This will lead to a market surplus of 30 units.