Suppose demand and supply are given by Q d = 100 - P and Q s = 2P + 25. Equilibr
ID: 1215910 • Letter: S
Question
Suppose demand and supply are given by Qd = 100 - P and Qs = 2P + 25.
Equilibrium Price is 25 and Equilibrium Quantity is 75.
(a) Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus if a price floor of $ 40 is imposed in this market.
(b) Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of $ 15 is imposed in this market. Also, determine the full economic price paid by consumers.
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Explanation / Answer
a. Since price floor is $40 , so market price is $40
Quantity demanded = 100 - P = 100 - 40 = 60
quantity supplied, = Qs = 2P + 25 = 2*40 + 25 = 105
and the magnitude of the surplus = Qs - Qd = 105 - 60 = 45
b.
Since price ceiling is $15 , so market price is $15
Quantity demanded = 100 - P = 100 - 15 = 85
quantity supplied, = Qs = 2P + 25 = 2*15 + 25 = 55
and the magnitude of the shortage = Qs - Qd = 85 - 55 = 30
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