Question

1. The market for DVDs has supply and demand curves given by Ps2Qand 42-Q respectively. a. What quantity of DVD at what price will be sold in equilibrium? b. If prices for DVDs are $14, do we expect to have an excess demand or excess supply in this market? Quantify this excess supply or excess demand. Illustrate the market for DVDs in a graph using the space below. Highlighting the market in equilibrium and when prices for DVDs are $14. c.

Answer 1

P^s = 2Q, P^D = 42 - Q Equilibrium will take place when P^S = P^D therefore 2Q = 42 - Q 3Q = 42 Q = 14 substituting Q in P^S therefore P^s = 2(14) P^S = 28 therefore Equilibrium price is $ 28 and quantity is 14 units of DVD Now p = $ 14 we will expect to have an excess demand. This is because when the price of the good declines the quantity demanded of the good increase. Since the price has decreased from $28 to $ 14, people will \r\n demand mov DVD^s distributing P = $14 in P^0 = 42 - Q 14 = 42 - Q 2 8 = Q therefore the quantity demand ha increased from 14 units of DVD�s to 28 units of DVD�s therefore the excess demand is 28 - 14 = 14 units of DVD�s