Question

Full explanation would be appreciated!

The demand for books is: Qd 120-P The supply of books is: OS = 5P a) Find equilibrium price and quantity b) If P = $15, which of the following is true? A) There is a surplus equal to 30 B) There is a shortage equal to 30 C) There is a surplus, but it is impossible to determine how large D) There is a shortage, but it is impossible to determine how large 32

Answer 1

a) At equilibrium prices, demand and supply are equal. I.e. Qd = QS

Qd = 120-p Qs = 5p

= 120 = 5p + p

= 120 = 6P

P = 120/6. The equilibrium price of the commodity will be 20.

At the equilibrium price, a good demand is 120 -p = 120 -20 or 100.

b) When P is $15, the quantity supplied is 5(15) = 75, and the quantity demanded is Qd = 120 -15 = 105.

Demand is greater than supply and there will be a shortage of 30. The answer is "B".