Question

Supply and Demand — End of Chapter Problem

The inverse demand for carbon‑steel chef’s knives is given by ?=120−12??P=120−12QD, where ?P is the price of a chef’s knife, and ??QD is the quantity of chef’s knives desired per week, in thousands. The inverse supply of chef’s knives is given by ?=20+2??P=20+2QS, where ??QS is the quantity of chef’s knives offered for sale each week, in thousands.

a. Accurately graph the inverse supply and the inverse demand curves.

b. According to the graph in part a, what are the buyers’ and sellers’ choke prices?

Buyer’s choke price: $

Seller’s choke price: $

c. The market equilibrium quantity is________ thousand.

d. The market equilibrium price is $

.

Answer 1

Ans.

Inverse demand, P = 120 - 12Qd

Inverse supply, P = 20 + 2Qs

b) Buyer’s Choke price, ( P at Qd = 0)

P = 120 - 12*0 = $120

Seller’s Choke price, (P at Qs = 0)

P = 20 + 2*0 = $20

c) Demand function,

Qd = 10 - 1/12 * P

And Supply function,

Qs = -10 + 1/2 * P

At market equilibrium,

Qs = Qd

=> 10 - 1/12 *P = -10 + 1/2 * P

=> 20 = 7/12 *P

=> P = $34.3

So, Market clearing price = $34.3

And from the demand and supply functions,

Market clearing quantity = Qd = Qs = 7.1428 thousand

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