Question

In a competitive market, the market demand is Qd= 60-6P and the market supply is Qs=4P. The amount sold under a price floor of $3 is

a) 24 units

b) 12 units

c) 42 units

d) 30 units

Answer 1

Answer :- Option 'b' is the correct Answer

Solution and Explanation ;

First, we have to determine equilibrium price and quantity

For equilibrium ;

Qs = Qd

4P = 60-6P

10P = 60

P = $6, This is the equilibrium price,

For equilibrium quantity,

Qs = Qd = 4P = 4×6 = 24. This is the equilibrium quantity where quantity supplied is equal to quantity demanded.

Now, there is a price floor of $3 which is less than the equilibrium price, which results in the shortage of units.

Qs = 4 ×3 = 12 units

Qd = 60 - 6×3 = 42 units

The quantity demanded exceeds the quantity supplied by 30 units. Therefore we can say that there is a shortage of 30 units between consumers and producers.

Hence the producers can sell only 12 units.