Suppose demand and supply are given by Q d = 50 - P and Q s = 1.0 P - 10. a. Wha
ID: 1134866 • Letter: S
Question
Suppose demand and supply are given by Qd = 50 - 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 $45 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 $25 is imposed in the market. Also, determine the full economic price paid by consumers.
Quantity demanded: ?
Quantity supplied: ?
Shortage: ?
Full economic price: $ ?
Explanation / Answer
Q.a)
Equilibrium condition is (Qd = Qs).
Qd = Qs
50 – P = 1.0P – 10
2P = 60
P = 30
Now, by putting this value in either Qd or Qs we will get equilibrium quantity.
Qd = 50 – P
= 50 – 30
= 20
Answers:
Equilibrium quantity = 20 units
Equilibrium price = $30
Q.b)
If the price is $45:
Qd = 50 – P
= 50 – 45
= 5
Qs = 1.0P – 10
= 45 – 10
= 35
Surplus = Qs – Qd
= 35 – 5
= 30
Answers:
Qty. demanded = 5 units
Qty. supplied = 35 units
Surplus = 30 units
Q.c)
If the price is $25:
Qd = 50 – P
= 50 – 25
= 25
Qs = 1.0P – 10
= 25 – 10
= 15
Shortage = Qd – Qs
= 25 – 15
= 10
Full economic price is the equilibrium price as calculated in (a) above.
Answers:
Qty. demanded = 25 units
Qty. supplied = 15 units
Shortage = 10 units
Full economic price = $30