Question

Qd - 500 - 4p: Demand Curve Equation .100+2p:Supply Curve Equation In equilibrium Q& In equilibriump-p Question 2.1) Compute equilibrium price (p*) and equilibrium quantity (Q*) quantitatively Question 2.2) Draw the demand and supply curves on a graph (Graph 1) with q on horizontal and p on vertical axis & show the equilibrium price and quantity. Make sure you label the axes and point out the horizontal and vertical intercepts of the demand curve. Question 2.3) Find Qd and Q if p-200. Is there a shortage or surplus? How much is the shortage/surplus? What should happen to price as a result?

Answer 1

At equilibrium, Q^a = Q^s 500 - 4p = -100 + 2p 600 = 6p p^* = 100 Q^* = 500 - 4 (100) = 100 Q^d = 500 - 4p when p = 0, Q^d = 500 when Q^d = 0, p = 500/4 = 125 Q^s = -100 + 2p when Q^s = 0, p = 100/2 = 50 P = 200 Q^d = 500 - 4 (200) = -300 Q^s = -100 + 2 (200) = 300 There is a surplus of 300 - (-300) = 600 Price should be decreased to eliminate the difference.