Suppose that in a recent market period, the following relationship existed betwe

Question

Suppose that in a recent market period, the following relationship existed betwen the price of tablet devices and the quantity supplied and quantity demanded.

Price:             Quantity Demanded:        Quantity Supplied:

390               100 million                         40 million                

400                90 milion                           60 million

410                80 million                          80 million

420                70 million                         100 million

430                60 million                         120 million

Graph the supply and demand curves for the tablet devices using the information in the table. What are the equilibrium price and quantity? If the industry price is $400, is there a shortage or surplus of tablet devices? How much is the shortage or surplus?

Explanation / Answer

At eqm Qty demand = Qty supply,

Using the info

at Price = $410, Qty demand = Qty supply = 80 million (eqm) otherwise we can also solve it

demand equation is

m = (390-400)/(100-90) = -1

Y = mX+c

Price = -Qty+c

400 = -90+c

c = 490

Price = -Qty+490 (demand Eqn)

similarly for supply function

m = (390-400)/(40-60) = .5

Price = .5*Qty+c

390 = .5*40+c

c = 370

Price = .5*Qty+370 (supply eqn)

Using demand and supply eqn

eqn Qty

.5*Q+370 = -Q+490

1.5Q = 120

Q = 120/1.5 = 80

Price = $410

if industry price is $400

there is shortage of = 90-60 = 30 million

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