Chapter 7, Problem 20AA

To determine

To create: Agraph showing supply and demand curves and evaluatethe equilibrium price for the new sandwich.

Explanation of Solution

  

  

From the given table, a graph for a person N’s sandwiches is presented. S and D represent the supply and demand in the graph. Price is presented on the vertical axis side and quantity demanded on the horizontal axis. So, the interaction between the supply curve and the demand curves is the equilibrium point. If the price is set above the equilibrium point then demand will fall until it reaches the equilibrium point and vice versa.

Now, the graph is plotted according to the table given in the question,

  

As the price will drop to $6.25, the quantity demanded will rise to 4.5, and the quantity supply will fall to 4.5. Therefore, the price at which quantity demanded equalizes quantity demanded is the equilibrium price which is $6.25 in this case.

Thus, the price of sandwich is $6.25.

Economics Concept Introduction

Introduction: The demand curve visualizes the relationship between a product or service’s price in a graphical presentation that is demanded in a particular period of time. The slope of the supply curve shows a positive or upward curve that indicates supply increases when the price increases.