Question

Assume we are studying the hotdog industry. In a given time period, demand for hotdogs is as follows: at a price of $1.00, 500 hotdogs are demanded. At a price of $2.00, 470 are demanded, while 430 are demanded at $3.00, 380 at $4.00, 300 at $5.00, 200 at $6.00, 90 at $7.00, and 10 at $8.00. At the same time, hotdog suppliers are willing to supply 600 at $8.00, 550 at $7.00, 500 at $6.00, 430 at $5.00, 350 at $4.00, 250 at $3.00, 140 at $2.00, and 50 at $1.00. Which number is closest to the equilibrium price of hotdogs?

Answer 1

The number that is closest to the equilibrium price of hotdogs is $4.

Step-by-step explanation:

Equilibrium price is the price at which quantity demand is equal to the quantity demanded.

Let DD denotes quantity demanded and SS denotes quantity supplied, we therefore have the following from the question:

(1) At Price = $1, DD = 500, SS = 50, and DD is 450 units greater than SS

(2) At Price = $2, DD = 470, SS = 140, and DD is 330 units greater than SS

(3) At Price = $3, DD = 430, SS = 250, and DD is 180 units greater than SS

(4) At Price = $4, DD = 380, SS = 350, and DD is 30 units greater than SS

(5) At Price = $5, DD = 300, SS = 430, and DD is 130 units less than SS

(6) At Price = $6, DD = 200, SS = 500, and DD is 300 units less than SS

(7) At Price = $7, DD = 90, SS = 550, and DD is 460 units less than SS

(8) At Price = $8, DD = 10, SS = 600, and DD is 590 units less than SS

From the above, the number that is closest to the equilibrium price of hotdogs is $4. Because, that is the point at which quantity demanded of 380 units is closest quantity supplied of 350. At that point, the 30-unit difference between the quantity demanded and the quantity supplied is the lowest compared to others.