Suppose demand and supply are given by Q d = 60 - P and Q s = 1.0 P - 10. a. Wha
ID: 1168553 • Letter: S
Question
Suppose demand and supply are given by Qd = 60 - 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 $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 if a price ceiling of $30 is imposed in the market. Also, determine the full economic price paid by consumers.
Quantity demanded:
Quantity supplied:
Shortage:
Full economic price: $
Explanation / Answer
At Equilibrium, Quantity demanded = Quantity supplied
60 – P = P – 10 hence, 2P = 70
Equilibrium price = $35
Equilibrium quantity = 60 – 35 = 25 units
Price floor is $50
Quantity demanded = 60 – 50 = 10 units
Quantity supplied = 50 – 10 = 40 units
Surplus = 30 units
Price ceiling is $30
Quantity demanded = 60 – 30 = 30 units
Quantity supplied = 30 – 10 = 20 units
Shortage = 10 units
Full economic price is the maximum price that the customer is willing to pay. The price will be equal to the price of the quantity demanded if the quantity demanded is equal to quantity supplied at price ceiling.
Full economic price = price of 20 units
Quantity demanded = 20 units
20 = 60 – P
P = 40
Full economic price = $40