Question

Suppose demand and supply are given by Q^d = 60 - P and Q^s  = 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 $52 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 $36 is imposed in the market. Also, determine the full economic price paid by consumers.

Quantity demanded:  

Quantity supplied:  

Shortage:  

Full economic price: $  

Answer 1

Answer
a)
equilibrium is at Qd=Qs
60-P=P-20
2P=80
P=40 and Q=60-40=20
Equilibrium quantity: 20

Equilibrium price: $40

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b)
a price floor is a minimum price a producer charge and it is above equilibrium price to be effective
P=52
Qd=60-52=8 units
Qs=52-20=32 units
Qs>Qd so there is a surplus
surplus =32-8=24 units

Quantity demanded: 8

Quantity supplied: 32

Surplus: 24
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c)
a price ceiling is a maximum price a producer can charge and it is effective when it is below the equilibrium price
P=36
Qd=60-36=24
Qs=36-20=14
Qd>Qs so there is a shortage
shortage
=24-14=10 units
full economic price or the maximum willingness to pay at the price ceiling is at
Qs =right side of Qd
14=60-P
P=60-14
P=46
so it is $46

Quantity demanded: 24

Quantity supplied: 14

Shortage: 10

Full economic price: $ 46