Question

Domestic demand for a good is QD = 3000 - 25P. The domestic supply of the good is QS = 20P. Foreign producers can supply any quantity at a price (P) of $30. Is there a shortage or a surplus? What is the quantity of shortage or surplus?

Answer #1

Answer is shortage of 1650 units when the price is $30.

Equilibrium price and quantity is determined by the intereaction of demand and supply equations.

QD = 3000 - 25P

QS= 20P

3000-25P= 20P

3000=45P

3000/45=P

P= $66.66

At price of $66.66 quantity demanded is 3000-25($66.66) = 3000 - 1667= 1333 units, quantity supplied is 20 ($66.66) = 1333 units.

At price of $30 quantity demanded is 3000-25($30) = 3000 - 750= 2250 units, quantity supplied is 20 ($30) = 600 units. Shortage is 2250-600 = 1650 units.

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