Question

In: Economics

The demand equation for good A is: Qd = 810 - 14P The supply equation for...

The demand equation for good A is: Qd = 810 - 14P

The supply equation for good A is: Qs = 396 + 9P

a. Calculate the value of the free-market equilibrium price (P*) of good A.

b. Calculate the value of the free-market equilibrium quantity (Q*) of good A.

c. Suppose that a law requires that the regulated price of good A be set at $28. Indicate whether there would be excess demand or excess supply and calculate the value of the excess demand or excess supply.

Solutions

Expert Solution

Demand equation is as follows -

Qd = 810 - 14P

Supply equation is as follows -

Qs = 396 + 9P

At equilibrium, demand equals supply

Qd = Qs

810 - 14P = 396 + 9P

-14P - 9P = 396 - 810

-23P = -414

23P = 414

P = 414/23

P = 18

Putting the value of P in either demand equation or supply equation to ascertain equilibrium quantity.

Taking demand equation,

Qd = 810 - 14P

Qd = 810 - [14 * 18]

Qd = 810 - 252

Qd = 558

(a)

The value of the free market equilibrium price (P*) of good A is 18.

(b)

The value of the free market equilibrium quantity (Q*) of good A is 558.

(c)

Now, the price of good A is fixed at $28.

Calculate quantity demanded at new price -

Qd = 810 - 14P

Qd = 810 - (14 * 28)

Qd = 810 - 392

Qd = 418

The quantity demanded at new price is 418 units.

Calculate the quantity supplied at new price -

Qs = 396 + 9P

Qs = 396 + (9 * 28)

Qs = 396 + 252

Qs = 648

The quantity supplied at new price is 648 units.

It can be seen that at new regulated price, the quantity supplied exceeds the quantity demanded.

When quantity supplied exceeds the quantity demanded, there is excess supply.

Thus,

There would be excess supply.

Calculate the value of excess supply -

Excess supply = Quantity supplied - Quantity demanded

Excess supply = 648 units - 418 units = 230 units

Thus,

The value of excess supply is 230 units.


Related Solutions

The demand equation for good A is: Qd = 1430 - 8P The supply equation for...
The demand equation for good A is: Qd = 1430 - 8P The supply equation for good A is: Qs = 923 + 5P a. Calculate the value of the free-market equilibrium price (P*) of good A. b. Calculate the value of the free-market equilibrium quantity (Q*) of good A. c. Suppose that a law requires that the regulated price of good A be set at $61. Indicate whether there would be excess demand or excess supply and calculate the...
The demand equation for good A is: Qd = 1396 - 8P The supply equation for...
The demand equation for good A is: Qd = 1396 - 8P The supply equation for good A is: Qs = 824 + 3P a. Calculate the value of the free-market equilibrium price (P*) of good A. b. Calculate the value of the free-market equilibrium quantity (Q*) of good A. c. Suppose that a law requires that the regulated price of good A be set at $68. Indicate whether there would be excess demand or excess supply and calculate the...
Demand Equation: QD = 250 − 5P Supply Equation: QS = 10 + 3P
  Demand Equation: QD = 250 − 5P Supply Equation: QS = 10 + 3P 1. When P = 5, what is the elasticity of supply? 2. What is The equilibrium price? 3. At the equilibrium price (from Question 2), what is the Consumer Surplus equal to? 4. Suppose the government imposes a tax of of $8 per unit sold of the good. How much of the tax does the consumer pay (per unit)?
In the market for good X, demand is QD = 6,000 – 0.8P and supply is...
In the market for good X, demand is QD = 6,000 – 0.8P and supply is QS = 0.4P – 300. A) What are the equilibrium price and quantity? B) What are consumer and producer surplus at market equilibrium? C) Suppose that an increase in consumer income makes consumers value each unit of good X $500 more. Also, a technological breakthrough in production decrease the marginal cost of each unit of good X by $500. What are the new equilibrium...
The demand and supply for a good are respectively QD = 16 – 2P + 2I...
The demand and supply for a good are respectively QD = 16 – 2P + 2I and QS = 2P – 4 with QD denoting the quantity demanded, QS the quantity supplied, and P the price for the good. Suppose the consumers’ income is I = 2. i) Determine producers’ total cost (there are no fixed costs) at the equilibrium. ii)Determine the producer surplus at the equilibrium. iii)) Determine the total surplus at the equilibrium..
The demand and supply for a good are respectively QD = 16 – 2P + 2I...
The demand and supply for a good are respectively QD = 16 – 2P + 2I and QS = 2P – 4 with QD denoting the quantity demanded, QS the quantity supplied, and P the price for the good. Suppose the consumers’ income is I = 2 i)Determine the price-elasticity of demand if P = 2. ii)Determine the income-elasticity of demand if P = 2. iii)Determine the price-elasticity of supply if P = 4. iv)) Determine consumers’ expenditures at the...
The demand and supply for a good are respectively QD = 16 – 2P + 2I...
The demand and supply for a good are respectively QD = 16 – 2P + 2I and QS = 2P – 4 with QD denoting the quantity demanded, QS the quantity supplied, and P the price for the good. Suppose the consumers’ income is I = 2. i) Determine consumers’ expenditures at the equilibrium. ii) Determine the consumer surplus at the equilibrium. iii) Determine consumers’ total benefits at the equilibrium. iv) Determine producers’ total revenues at the equilibrium.
The demand and supply for a good are respectively QD = 80 – 5P and QS...
The demand and supply for a good are respectively QD = 80 – 5P and QS = - 40 + 20P. 1) Determine the equilibrium price. 2) Determine the equilibrium quantity. Suppose the government imposes a unit tax of 1.5 on producers. 3) Determine the price paid by consumers. 4) Determine the size of the tax that is supported by consumers. 5) Determine the price received by producers. 6) Determine the size of the tax that is supported by producers....
Supply and Demand for an imported good are given by QD = 30 – 4P and...
Supply and Demand for an imported good are given by QD = 30 – 4P and QS = 6 + 2P. Currently Canada allows free trade at a world price of $2. a. Trade disputes lead the Canadian government to implement an import quota at Q = 6 units for this good. Provide a labelled diagram and calculate how introducing an import quota will affect consumer, producer and licensee surplus in the economy. Label the deadweight (efficiency) loss. b. Clearly...
Assume that the demand for commodity is represented by the equation P=50-Qd and supply by the...
Assume that the demand for commodity is represented by the equation P=50-Qd and supply by the equation P=25+Qs, where Qd and Qs are quantity demanded and quantity supplied, respectively and P is price. a. Compute and show on your graph the DWL if the government subsidizes the consumers of the good ( subsidy=$2/unit) b. Explain the gains from this trade.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT