Market Equilibrium. Various beverages are sold by roving vendors at Busch Stadiu
ID: 1248756 • Letter: M
Question
Market Equilibrium. Various beverages are sold by roving vendors at Busch Stadium, home of the St. Louis Cardinals. Demand and supply of the product are both highly sensitive to changes in the weather. During hot summer months, demand for ice-cold beverages grows rapidly. On the other hand, hot dry weather has an adverse effect on supply in that it taxes the stamina of the vendor carrying his or her goods up and down many flights of stairs. The only competition for this service is provided by the beverages that can be purchased at kiosks located throughout the stadium.Demand and supply functions for ice-cold beverages per game are as follows:
QD = 20,000 - 20,000P + 7,500PK + 0.8Y + 500T (Demand)
QS = 1,000 + 12,000P - 900PL - 1,000PC - 200T (Supply)
where P is the average price of ice-cold beverage ($ per beverage), PK is the average price of beverages sold at the kiosks ($ per beverage), Y is disposable income per household for baseball fans, T is the average daily high temperature (degrees), PL is the average price of unskilled labor ($ per hour), and PC is the average cost of capital (in percent).
A.When quantity is expressed as a function of price, what are the ice-cold beverage demand and supply curves if P = $5, PK = $4, Y = $62,500, T = 80 degrees, PL = $10, and PC = 12%.
B.Calculate the surplus or shortage of ice-cold beverage when P = $4, $5, and $6.
C.Calculate the market equilibrium price-output combination.
Explanation / Answer
A) The easiest way to figure this out in probably in excel. Set up formulas to make the same as the equations but can change it really fast. So, are you suppose to graph the supply and demand curves? Or just figure out what the quantities are? Or is this just information to solve the other two problems? B)QD(4)=60000 QS(4)=44000, Shortage of 16000 QD(5)=40000 QS(5)=56000 Surplus of 16000 QD(6)=20000 QS(6)=68000 Surplus of 48000 C) Use basic solver to figure this out, or figure out what a simple price and quantity functions by plugging in assumptions and then set the supply and demand functions equal to each other. P=$4.5 Good luck! Enjoy!