Suppose demand and supply are given by Qd = 60 - P and Qs = 1.0P - 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 if a price ceiling of $29 is imposed in the market. Also, determine the full economic price paid by consumers. Quantity demanded:

Question

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pedrocarratore pedrocarratore · Answer 1 · 2020-02-12T05:06:01+01:00

Answer:

a. Equilibrium quantity: 40 units; Equilibrium price: $40.

b. Quantity demanded: 10 units; Quantity supplied: 30 units; Surplus: 20 units.

c. Quantity demanded: 9 units; Quantity supplied: 31 units; Shortage: 22 units.

Explanation:

a. The equilibrium quantity occurs when the demanded and supplied quantity are the same, the price for which this situation happens is:

[tex]60 - P = 1.0P - 20.\\2P=80\\P=\$40[/tex]

At an equilibrium price of $40, the equilibrium quantity is:

[tex]Q = $40 -20 = 40\ units[/tex]

b. At a price of $50, the quantity demanded, the quantity supplied, and the magnitude of the surplus are, respectively:

[tex]Q_d = 60 - P =60-50 =10\ units\\Q_s = 1.0P - 20=50-20 = 30\ units\\Surp = Q_s - Q_d = 30 -10 = 20\ units[/tex]

c. At a price of $29, the quantity demanded, the quantity supplied, and the magnitude of the shortage are, respectively:

[tex]Q_d = 60 - P =60-29 =31\ units\\Q_s = 1.0P - 20=29-20 = 9\ units\\Short = Q_d - Q_s = 31 -9 = 22\ units[/tex]