Question

The equilibrium price and quantity are *

A) P=620$ and Q=800

B) P=144$ and Q=512

C) P=512$ and Q=144

D) P=220$ and Q=200

Which of the following is the Demand Equation *

A) P=800+2Q

B) P=800-2Q

C) P=80-3Q

D) P=80+3Q

What is the self-regulation process in this case? *

A) Price will increase until equilibrium

B) Price will decrease until equilibrium

C) Quantity will increase until equilibrium

D) Quantity will decrease until equilibrium

Calculate the quantity traded of carpets at $620 *

A) 90

B) 180

C) 270

D) 0

If the price is equal to $620, will there be a shortage or a surplus? *

A) Surplus 90

B) Shortage 90

C) Surplus 180

D) Shortage 180

Blankets Market

Which of the following is the Supply Equation *

A) P=800+2Q

B) P=800-2Q

C) P=80-3Q

D) P=80+3Q

Answer 1

Since further information (graph, demand supply table etc) is not given, solving this through first getting the demand and supply equations and solving them to get equilibrium quantity and price. The solution method is shown in part B. If you have a table in the question, then the equilibrium quantity will be where demand=supply. If you have a graph, the equilibrium will be where Demand and supply curves cross each other.

A. The equilibrium quantity will be where demand curve crosses supply curve. So, at equilibrium

800-2Q=80+3Q

Q=144.

At !=144,

P=80+3*144

P=512.

Hence, option C is correct.

B. The demand equation will be the one where the quantity rises as price falls. This means only 800-2Q or 80-3Q can be the answer. But the problem with 80-3Q is that, when equated with the other two candidates which are supply equations, its equilibrium quantity turns out to be 0 or negative. Hence, it cant be the demand equation.

So, 800-2Q is the demand equation. Option B is correct.

C. At price of $620, the price is higher than equilibrium price of 512. This means demand will fall and price will also have to fall to increase demand again. So,

Price will decrease until equilibrium- option B.

D. At 620, demand will be

800-2Q=620

2Q=180

Q=90. Option A

E. At 620, demand will be

800-2Q=620

2Q=180

Q=90.

Supply will be

620=80+3Q

3Q=620-80=540

Q=540/3=180

Since supply is higher than demand,

there is a surplus of 180-90=90. Option A.

F. The supply equation is 80+3Q (same method as part B). Option D.