Question

1. Use demand and supply analysis to explain why there is a long waiting list for plots in Kitwe.

2. . If the demand and supply functions for pies in Kitwe were

   Q_d = 10000 – 1000p

   Q_s = -2000 + 1000p

   a) Determine algebraically the equilibrium price and quantity for pies in Kitwe

   b) Plot the market demand and supply curves and label the equilibrium point E

   c) Draw the demand curve faced by a single pie shop in this market on the assumption that the market is perfectly competitive

   d) Show also the marginal revenue of the single firm on this figure

Answer 1

Ans. The equilibrium is where demand equals supply,

=> Qs = Qd

=> 10000 - 1000P = -2000 + 1000P

=> P = $6

and Qd = Qs = 4000 units

c) Single firm will face a perfectly elastic demand curve i.e. a horizontal demand curve

d) Due to horizontal demand curve, the marginal revenue curve will coincide with the demand curve.

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