Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

34 DEMAND, SUPPLY, AND EQUILIBRIUM: AN OVERVIEW [CHAP. 2
2.20 If commodity Y’s market demand schedule and market supply schedule are instead those given in
Table 2.23, would the equilibrium for commodity Y be stable, unstable or metastable? Why?
Table 2.23
P y ($) 5 4 3 2 1
QD y 1,000 4,000 7,000 10,000 13,000
QS y 5,000 6,000 7,000 8,000 9,000
From Table 2.23, we get
Table 2.24
P y ($) QD y QS y Pressure on P y
5 1,000 5,000 downward
4 4,000 6,000 downward
3 7,000 7,000 Equilibrium
2 10,000 8,000 upward
1 13,000 9,000 upward
Fig. 2-23
Table 2.24 and Fig. 2-23 indicate a stable market because, for prices above the equilibrium price, a surplus of commodity
Y results which drives the price toward the equilibrium level. For prices of Y below the equilibrium price, a
shortage of commodity Y results which drives the price up toward the equilibrium level. This is indicated by the
direction of the arrows in the figure. Notice that here the market supply curve of Y is negatively sloped but is
steeper than the market demand curve for Y. Compare this case with that in Problem 2.19.
2.21 Suppose that from the condition of equilibrium in Problem 2.17, there is an increase in consumers’
incomes (ceteris paribus) so that a new market demand curve is given by QD 0 x ¼ 140,000 2
20,000P x .(a) Derive the new market demand schedule, (b) show the new market demand curve (D 0 x)
on the graph of Problem 2.17(c), and (c) state the new equilibrium price and the new equilibrium quantity
for commodity X.
(a) Table 2.25
P x ($) 6 5 4 3 2 1 0
QD 0 x 20,000 40,000 60,000 80,000 100,000 120,000 140,000