PART A: Suppose the demand and supply curves for a particular product are given

Question

PART A: Suppose the demand and supply curves for a particular product are given below.

D: P = 130 Q

S: P = 10 + Q

What is the equilibrium price, Pe , and equilibrium, Qe ?

a. Pe = 70; Qe = 80.

b. Pe = 60; Qe = 50.

c. Pe = 80; Qe = 50.

d. Pe = 70; Qe = 60.

e. Pe = 120; Qe = 60.

PART B: If the actual price of wheat is above the equilibrium price:
a. there will be a shortage of wheat.
b. there will be a surplus of wheat.
c. there will be an equilibrium quantity of wheat bought and sold.
d. the price will tend to rise further above the equilibrium price.
e. none of the above.

Explanation / Answer

For equilibrium demand = supply

therefore, 130 - Q = 10 + Q

=> Qe = 60

Pe = 130 - 60 = 70

option (d)

PART (B): If the actual price of wheat is above the equilibrium price then there will be a surplus of wheat because supply is more than demand at that point.

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