Question

Using the information below answer the following questions.

If demand is :Qd = 800 - 5 P   and supply is: Qs = 125 + 15 P

Where: Qd = quantity of the good demanded.
              Qs = quantity of the good supplied.
                P = price of the good.

Part 1: The equilibrium price is ______

Part 2: The equilibrium quantity is _________

Part 3: An imposed price of 20.25 yields an excess (demand/supply) of _____ units

Part 4: Assuming a change in costs shifts the supply curve to Qs'= 87.5 + 15 P,   the new equilibrium price is _______

Part 5: With the new supply in part 4, the new equilibrium quantity is __________

Answer 1

Ans-1 At equilibrium, QD=QS

By putting QD=QS,we get,

800-5P=125+15P

800-125=15P+5P

675=20P

P=675/20

P=$33.75 (equilibrium price).

Ans-2) Equilibrium quantity:

Putting the value of P in QD

QD=800-5×33.75

QD=800-168.75

QD=631.25 units.(equilibrium quantity).

Ans-3 An imposed price of 20.25.

Now quantity Demanded=800-5×20.25

QD=800-101.25=698.75 units.

And quantity supplied=125+15×20.25

Quantity supplied=125+303.75=428.75 units.

So in this case there is an excess demand of 270 units.

Ans-4 At equilibrium, QD=QS

So by putting QD=QS

800-5P=87.5+15P

800-87.5=20P

P=712.5/20=35.625.

New Equilibrium price=$35.625.

Ans-5 New Equilibrium quantity= 800-5×35.625

New Equilibrium quantity=800-178.125

New Equilibrium quantity=621.875 units.