Question

In: Economics

Use the following demand and supply functions:

Use the following demand and supply functions:

                                    Demand:                Qd= 900 - 60P

                                    Supply:                  Qs= -200 + 50P

If the price is currently $11, there is a

surplus of 110 units.

shortage of 240 units.

surplus of 350 units.

shortage of 700 units.

Solutions

Expert Solution

The correct answer is (a) surplus of 110 units.

Currently Price = 11 => P = 11

Demand is given by: Qd = 900 - 60P when P = 11

=> Quantity demand (Qd) = 900 - 60*11 = 240

Supply is given by:  Qs = -200 + 50P

=> Quantity supplied (Qs) = -200 + 50*11 = 350

When Quantity supplied > Quantity demand then there is a surplus and When Quantity supplied < Quantity demand then there is a shortage.

Here Quantity supplied > Quantity demand Thus there is a surplus.

As, Surplus = Quantity supplied - quantity demand

=> Surplus = 350 - 240 = 110

Thus there is surplus of 110 units If price = 11

Hence, the correct answer is (a) surplus of 110 units.

Rahul Sunny answered 2 years ago
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