Suppose demand and supply are given by Q d = 40 - P and Q s = 1.0P - 10. a. What
ID: 1104779 • Letter: S
Question
Suppose demand and supply are given by Qd = 40 - P and Qs = 1.0P - 10.
a. What are the equilibrium quantity and price in this market?
Equilibrium quantity:
Equilibrium price: $
b. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus if a price floor of $32 is imposed in this market.
Quantity demanded:
Quantity supplied:
Surplus:
c. Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of $18 is imposed in the market. Also, determine the full economic price paid by consumers.
Quantity demanded:
Quantity supplied:
Shortage:
Full economic price: $
Explanation / Answer
Answer.)
a.) equilibrium quantity and equilibrium price,
Qd = Qs
40 - P = P - 10
2P = $50
P = $25
equilibrium price = $25
equilibrium quantity = 40 - 25 = 15 units
b.) Price floor = $32
Quantity demandewd = 40 - 32 = 8
Quantity supplied = 32 - 10 = 22
Surplus = quantity supplied - quantity demanded = 22- 8 = 14 units
c.) price ceilings = $18
quantity dmanded = 40 -18 = 22
Quantity supplied = 18 - 10 = 8
Shortage = QUANTITY DEMANDED - QUANTITY SUPPLIED = 22 - 8 = 14 UNITS
Full economic price = The dollar amount paid to a firm under a price ceiling, plus the nonpecuniary price.
= $18 + ($25 - $18)
= $18 + $7 = $25