Suppose demand and supply are given by Qd = 50 - P and Qs = 0.5P - 10. a. What a
ID: 1093146 • Letter: S
Question
Suppose demand and supply are given by Qd = 50 - P and Qs = 0.5P - 10. a. What are the equilibrium quantity and price in this market?
a. What are the equilibrium quantity and price in this market?
b. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus if a price floor of $48 is imposed in this market.
c. Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of $32 is imposed in the market. Also, determine the full economic price paid by consumers.
Explanation / Answer
At equilibrium , Qd = Qs
50 - P = 0.5P - 10
P = 60/1.5 = 40
Qd = 10 = Qs
b.) If there is price floor of $48, then
Qd = 50 - 48 = 2
Qs = 0.5*48 - 10 = 14
Consumer Surplus = 0.5*2*2 = $2
Producer Surplus = 0.5*2*(28+24) = $52
Total Surplus = $54
c.) Now, a price floor of $32
Qd = 50 - 32 = 18
Qs = 0.5*32 - 10 = 6
Magnitude of shortage = 12