Question

Consider the following US reduced supply and demand equations for commodity X: QdX = 400 – 2Px and QsX = - 100 + 3Px A.

What are (1) the equilibrium price per unit of product;

(2) Quantity of this product sold at this price;

and (3) what were the revenue for the producers?

B. If this product can now be export to a make-believe country and the estimated reduced demand equation for this product in this make-believe country is : Qd MB = 400 – Px What was the new equilibrium price and quantity of this product? Illustrate the old and new equilibria in one diagram C. At the new equilibrium price (1) how many units of this product X are produced?

(2) How many units were consumed by the US consumers?

(3) what were the revenues of the producers

Answer 1

1) Equilbiirum is acheived when demand equals supply as follows -

400 - 2Px = -100 + 3Px

400 + 100 = 3Px + 2Px

500 = 5Px

Px = 100

Thus, equilibrium price is $100

2) Put equilibrium price into demand or supply equation to get equilibrium output as follows -

Q = 400 - 2(100)

Q = 400 - 200 = 200 units

equilibrium output is 200 units

3) revenue of producers = Equilibrium price * equilibrium output = 100*200 = $2000

B) when there is new demand then,

400 - Px = -100 + 3Px

400 + 100 = 3Px + Px

500 = 4Px

Px = 125

Thus, new equilibrium price is $120

and new output is -

Q = 400 - (125)

Q = 275 units

equilibrium output is now 275 units

The following is the graph -

C) 1) As you see the new output is 275 units

2) At price of 4125, US consumers will demand 150 units hence US consumers will consume 150 units.