Question

The demand and supply for iPads can be expressed as Q^D = 120,000 – 280 P and Q^S = –75,000 + 500 P, respectively . Find the equilibrium price and quantity of iPads.

	A.	$200 and 85,000 iPads
	B.	$250 and 40,000 iPads
	C.	$225 and 75,000 iPads
	D.	$250 and 50,000 iPads

Consider the market for soy based (SB) livestock feed (i.e. cow food). The U.S. is one of the largest producers of soybeans, an ingredient used in livestock feed. Using just the information below, how do you expect the following two events to impact the market equilibrium of SB livestock feed:

1) A flurry of tornadoes swept across Iowa and destroy tens of thousands of acres of soybean crops.
2) A new study found livestock that ate soy based feed are healthier, larger, and are a more productive livestock than those that ate non-soy based feed.

	A.	the equilibrium price of SB livestock feed will decrease and equilibrium quantity of SB livestock feed will be uncertain.
	B.	the equilibrium price of SB livestock feed will be uncertain and equilibrium quantity of SB livestock feed will decrease.
	C.	the equilibrium price of SB livestock feed will increase and equilibrium quantity of SB livestock feed will be uncertain.
	D.	the equilibrium price of SB livestock feed will be uncertain and equilibrium quantity of SB livestock feed will increase.

Answer 1

Answer

1. D. $250 and 50,000 iPads

The demand for iPads is as follows,

Q^D = 120,000 – 280P...........(1)

The supply of iPads is as follows,

Q^S = – 75,000 + 500P,............(2)

At the equilibrium, Q^D = Q^S

  120,000 – 280P =  – 75,000 + 500P

Or,  – 280P - 500P = - 75,000 - 120,000

Or, - 780 P = - 195,000

Or, P = - 195,000 / - 780

Or, P = 250

Now, putting the value of P in equation(1), we get,

Q^D = 120,000 – 280 * 250

Or, Q^D = 120,000 – 70,000

Or, Q^D = 50,000

Again, putting the value of P in equation(2), we get,

Q^S = – 75,000 + 500 * 250

Or,  Q^S = – 75,000 + 125,000

Or, Q^S = 50,000

  Q^D = Q^S = 50,000

So, the equilibrium price is $250 and the equilibrium quantity is 50,000 iPads.

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2. C . The equilibrium price of SB livestock feed will increase and equilibrium quantity of SB livestock feed will be uncertain.

A flurry of tornadoes swept across Iowa and destroy tens of thousands of acres of soybean crops will decrease the supply of soybean crops. On the other hand, as the study found livestock that ate soy based feed are healthier, larger, and are a more productive livestock than those that ate non-soy based feed, this will increase the demand for soybeans.

The above two events will increase the equilibrium price of SB livestock but the change in equilibrium quantity depends on the relative change of the supply of and demand for SB livestock. If both the supply and demand change at the same proportion, the equilibrium quantity will remain same as before. If the demand increases more than the decrease in supply, the equilibrium quantity will rise. If the supply decreases more than the increase in demand, the equilibrium quantity will fall. Thus, the equilibrium price of SB livestock feed will increase and equilibrium quantity of SB livestock feed will be uncertain.

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