Question

1. The domestic demand function for Phone X is P= 800 - 2Qd and the domestic supply for Phone X is P= 200 + 1Qs. Assuming a competitive market for Phone X:

A) Calculate the equilibrium quantity (Q*) for Phone X (show all the calculations clearly)

B) Calculate the equilibrium price (P*) for Phone X (show all the calculations clearly)

C) At what price will the domestic quantity demanded be equal to zero (i.e the price at which nobody will demand Phone X)? (show all the calculations clearly)

D) At what price will domestic supply be equal to zero? (i.e the price at which no domestic supplier would be wiling to supply any phones? (show all the calculations clearly)

E) In the space below, sketch a graph that represents the domestic supply and demand for Phone X, Clearly label all parts of the graph and make sure you show (and label) the equilibrium price and quantity.

F) using the above supply and demand functions, calculate how many phones would be demanded at a price of 250$ per phone.

G) at a price of 250$ , how many phone would domestic suppliers be willing to supply?

H) Describe the situation that would arise in this market for phones if these were indeed being sold at 250$ per phone , and explain how the price would adjust over time

Answer 1

A) In equilibrium, quantity demanded is equal to quantity supplied. So, to find out the equilibrium quantity, we will equate the domestic demand and domestic supply equations with each other and since Q_D = Q_S, we will replace them respectively with Q.

Equating the above two equations, 800 - 2Q = 200 + Q

2Q + Q = 800 - 200

3Q = 600

Q = 200 is the answer.

So, the equilibrium quantity that is Q^* = 200 is the answer.

B) Putting the value of Q^* in any of the supply or demand equations will give us the equilibrium price. So putting Q^* = 200 in the demand equation,

P = 800 - 2Q_D

P = 800 - (2 X 200)

P = 800 - 400

P = 400 is the answer.

So, the equilibrium price that is P^* = 400 is the answer.

C) To find out the price at which the domestic quantity demanded is equal to 0,  we put the value of Q_D = 0 in the demand function,

   P = 800 - 2Q_D

P = 800 - (2x0)

P = 800 - 0

P = 800 is the answer.

D) To find out the price at which the domestic quantity supplied is equal to 0,  we put the value of Q_S = 0 in the supply function,

P = 200 + Q_S

P = 200 + 0

P = 200 is the answer.