Question

2. The following are the equations for demand and supply of lemons in N. Cyprus during the month of June 2020. The quantity is in terms of tons per month and the price in TL per kilo of lemons. Q = 800 – 40P Q = 400 + 10 P The equilibrium price is where demand and supply meet: 800 – 40P = 400 + 10P 800 – 400 = 50P 50P = 400 P = 400/50 = 8 Q = 400 + (10x8) = 480 NOW: Please keep the demand equation above but choose a new supply equation which is different from the one given above. Calculate the new equilibrium price and equilibrium quantity of lemons given your new supply function and the old demand function.

Answer 1

Q_D = 800 – 40P

Q_S = 400 + 10 P

The equilibrium price is where demand and supply meet:

800 – 40P = 400 + 10P

800 – 400 = 50P

50P = 400

P = 400/50 = 8

Q = 400 + (10x8) = 480

This is the given calculation, we now have to choose a different supply function (the demand function remains the same ) and then compare the results.

let the new supply function be as follows:

Q_s(new) = 100 + 5 P

Q_D = 800 – 40P

The equilibrium price is where demand and supply meet:

800 – 40P = 100 + 5 P

700 = 45 P

P = 700/45 = 15.55

Q = 177.77

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