The first three questions are based on the following information. The ICO (Inter

Question

The first three questions are based on the following information. The ICO (International Coffee Organization) has estimated (using statistical techniques) that the market for Colombian Mild Arabica (a coffee variety) is characterized by a market demand given by Q=1,000-8P, while the market supply is Q=250+2P. Quantities are measured in millions of pounds; prices are measured in cents per pound.

Given this information, the equilibrium market price and quantity traded are:

A. P=30, Q=1,400.
B. P=75, Q=400.
C. P=45, Q=350.
D. P=60, Q=500.

Explanation / Answer

Equilibrium is the point at which quantity supplied is equal to quantity demanded. Since each variable varies directly with price, it is possible so simply set the two expressions equal to one another: 250 + 2P = Q = 1,000 - 8P 250 + 2P = 1,000 - 8P [Solving for P by adding 8P and subtracting 250 from each side] 10P = 750 P = 75 At 75$ there will be 250 + 2(75) = 400 units supplied and 1,000 - 8(75) = 400 units demanded Equilibrium.

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