Suppose demand and supply are given by Q d = 60 - P and Q s = 1.0 P - 10. a. Wha

Question

Suppose demand and supply are given by Qd = 60 - P and Qs  = 1.0P - 10.

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 $30 is imposed in the market. Also, determine the full economic price paid by consumers.

Quantity demanded:

Quantity supplied:

Shortage:

Full economic price: $

Explanation / Answer

At Equilibrium, Quantity demanded = Quantity supplied

60 – P = P – 10 hence, 2P = 70

Equilibrium price = $35

Equilibrium quantity = 60 – 35 = 25 units

Price floor is $50

Quantity demanded = 60 – 50 = 10 units

Quantity supplied = 50 – 10 = 40 units

Surplus = 30 units

Price ceiling is $30

Quantity demanded = 60 – 30 = 30 units

Quantity supplied = 30 – 10 = 20 units

Shortage = 10 units

Full economic price is the maximum price that the customer is willing to pay. The price will be equal to the price of the quantity demanded if the quantity demanded is equal to quantity supplied at price ceiling.

Full economic price = price of 20 units

Quantity demanded = 20 units

20 = 60 – P

P = 40

Full economic price = $40

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