Suppose demand and supply are given by Q^d =60 - P and Q^S = P-20. a. What are t
ID: 1167630 • Letter: S
Question
Suppose demand and supply are given by Q^d =60 - P and Q^S = P-20. 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 $50 is imposed in this market. Quantity demanded: Quantity supplied: Surplus: c. Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage fa price ceiling of $32 is imposed in the market. Also, determine the full economic price paid by consumers. Quantity demanded: Quantity supplied: Shortag e: Full economic price: $Explanation / Answer
Supply function: Q = P-20
and Demand Function: Q = 60-P
(a) Equilibrium price and quantity can be identified by equating the above two function:
P-20 = 60-P
2P = 80
P = $40
and Q = 60 - (40) = 20 units
equilibrium quantity is 20 units and equilibrium price is $40.
(b) If price floor is imposed in the market at $50, it implies no seller will be allowed to sell the product below $50 per unit, thus supply quantity would be = P - 20 = 50-20 = 30 units
and quantity demanded would be = 60 - P = 60 - 50 = 10 units.
quantity demanded and supplied does not match at this price floor. supply is greater than demanded, thus a surplus occurs.
Magnitude of surplus = supply - demand = 30 - 10 = 20 units.
(c) If price ceiling of $32 is imposed it implies no seller would be allowed to sell above $32 price per unit.
thus supply quantity would be = P - 20 = 32-20 = 12 units
and quantity demanded would be = 60 - 32 = 60 - 32 = 28 units.
quantity demanded and supplied does not match at this price floor. Demand is greater than supply, thus a shortage occurs.
Magnitude of shortage = Demand - Supply = 28 - 12 = 16 units.
Full economic price (PF) = Pc + (PF - PC) where
PF = full economic price
PC = price ceiling
PF - PC = nonpecuniary price
12 = 60 - PF
PF = $48.