Question

The table at the end of this problem gives hypothetical data for the quantity of electric scooters demanded and supplied per month. a. Graph the demand and supply curves. b. Find the equilibrium price and quantity. c. Illustrate on your graph how an increase in the wage rate paid to scooter assemblers would affect the market for electric scooters. d. What would happen if there was an increase in the wage rate paid to scooter assemblers at the same time that tastes for electric scooters increased? $$\begin{array}{ccc} \begin{array}{c} \text { Price per } \\ \text { Electric Scooter } \end{array} & \begin{array}{c} \text { Quantity } \\ \text { Demanded } \end{array} & \begin{array}{c} \text { Quantity } \\ \text { Supplied } \end{array} \\ \hline \$ 150 & 500 & 250 \\ \$ 175 & 475 & 350 \\ \$ 200 & 450 & 450 \\ \$ 225 & 425 & 550 \\ \$ 250 & 400 & 650 \\ \$ 275 & 375 & 750 \end{array}$$

Short answer

The equilibrium price and quantity is $200 per electric scooter and 450 scooters, respectively. An increase in the wage rate paid to scooter assemblers would shift the supply curve to the left, implying a decrease in the quantity supplied. If there is an increase in the wage rate at the same time that tastes for electric scooters increase, it will result in a leftward shift of the supply curve and rightward shift of the demand curve.

Step-by-step solution

Create demand and supply graph

To graph the demand and supply curves, list out the prices on the vertical axis and the quantities on the horizontal axis. The demand curve is drawn by connecting the points representing the prices and corresponding quantity demanded, and the supply curve is drawn by connecting the points representing the prices and corresponding quantity supplied.

Find equilibrium

The equilibrium in the market occurs where the demand curve and the supply curve intersect. In this case, it is where the quantity demanded equals the quantity supplied, which occurs at a price of $200 per electric scooter and a quantity of 450 scooters.

Analyze the effect of increase in wages

If the wage rate paid to scooter assemblers increases, it would push up the cost of production. As a result, suppliers would be less willing to supply at the current price, leading to a decrease in the quantity supplied. This shifts the supply curve to the left.

Analyze the effects of increase in wage rate and increase in tastes

If there's an increase in wage rate paid to scooter assemblers coinciding with an increase in tastes for electric scooters, two effects occur. First, the supply curve shifts to the left due to increase in wages as explained in step 3. Second, the demand curve shifts to the right, since an increase in tastes leads to an increase in quantity demanded at each price.

Key concepts

Demand and Supply Curves

Understanding demand and supply curves is essential to grasp how markets operate. These curves represent the relationship between the price of a product and the quantity of the product that consumers are willing to buy or sellers are willing to sell at that price.

The demand curve is a downward-sloping line on a graph where the vertical axis represents price and the horizontal axis represents quantity. This slope indicates that as the price of an item goes down, consumers are willing to buy more, reflecting the law of demand.

Conversely, the supply curve is upward-sloping, showing that as the price of an item goes up, producers are more inclined to sell more, which is in accordance with the law of supply. These curves are pivotal for identifying the equilibrium price and quantity in a market, which leads us to our next concept.

Market Equilibrium

Market equilibrium is a key concept where the demand and supply curves intersect. At this point, the quantity of goods consumers want to buy is exactly equal to the quantity of goods producers want to sell. This creates a stable market where there is no tendency for the price to change, as long as other factors remain constant.

To find the equilibrium price and quantity, you can use a table of demand and supply quantities at different price levels, as found in the exercise. By graphing these values and determining the intersection point of the curves, you discover the equilibrium. In the given scenario, the market reaches equilibrium at a price of $200 per electric scooter and a quantity of 450 scooters.

It is important for students to practice identifying this point because market equilibrium determines the price and quantity of goods in a free market, affecting consumers and producers alike.

Effects of Wage Increase on Supply

Wages are a component of the costs of production for goods and services. When wages increase, it affects the supply curve in the market. Specifically, an increase in wages typically leads to higher production costs for companies, which may decrease the amount they are willing to supply at a given price.

This is represented graphically as a shift of the supply curve to the left, which is called a decrease in supply. As a result, at each price point, the quantity supplied will be lower than before, causing the supply curve to intersect the demand curve at a new equilibrium point - usually at a higher price and a lower quantity.

In a real-world example, if the wages for electric scooter assemblers go up, a company manufacturing scooters might respond by cutting back on production or increasing prices to cover the increased costs. Understanding this concept helps students analyze and predict the potential impacts of labor market changes on the supply of goods.