Consider the market for a good x. a) Suppose that sons users do not buy any Good
ID: 1203237 • Letter: C
Question
Consider the market for a good x.
a) Suppose that sons users do not buy any Good x at the price of $130, and for every $10 decrease in proce, the quantity consumed increased by 20. write the equation for the demand curve of good x
b) Suppose that producers do not produce any of Good x at the price of $60,and for every $10 increase in price, the producers increase the quantity produced by 30. Write the equation for the supply curve for Good x
c) Find the equilibrium price and quantity
d) at what price does the market have a shortage of 40?
e) at what price does this market have a surplus of 60?
Explanation / Answer
A) Given that users do not buy any Good x at the price of $130. This price gives the vertical intercept of the demand curve. Now for every $10 decrease in price, the quantity consumed increased by 20. This gives the slope of the demand curve equal to -2. Thus the equation for the demand curve of good x is Qd = 130 - 2P
B) Given that producers do not produce any of Good x at the price of $60. This price gives the vertical intercept of the supply curve. Now for every $10 increase in price, the producers increase the quantity produced by 30. This gives the slope of the supply curve equal to 3. Thus the equation for the supply curve of good x is Qs = 60 + 3P
C) Equilibrium occurs at
Qs = Qd
60 + 3P = 130 - 2P
5P = 70
P= 14, Q = 102 units
Thus the equilibrium price is $14 per unit and qunatity is 102 units
D) A shortage of 40 implies
Qd - Qs = 40
130 - 2P - 60 - 3P = 40
70 - 7P = 40
30 = 7P
P = $4.28