Assume that the supply and demand curves in a market are described by the follow
ID: 1168642 • Letter: A
Question
Assume that the supply and demand curves in a market are described by the following equations.
SUPPLY:Qs=(0.25).P-0.5
DEMAND :Qd=18.5-(0.25).P
Answer the following questions.
a. What is the vertical intercept for this supply curve? (Remember, for the supply curve, we put price (P) on the vertical axis ).
b. What is the first equilibrium price and quantity
(Pe1 and Qe1) in this market?
c. If consumers demand (D) decreases by five (5) units due to a fall in popularity, then what is the new equilibrium price and quantity (Pe2 and Qe2)?
d. What is the vertical intercept of the new demand curve referred to in Question (c)?
Explanation / Answer
QS = 0.25P - 0.50
0.25P = QS + 0.5
P = 4QS + 2
(a)
When QS = 0, P = 2
This is the vertical intercept of supply curve.
(b) In equilibrium, QD = QS
18.5 - 0.25P = 0.25P - 0.50
0.5P = 19
P = 38
Q = 0.25P - 0.50 = (0.25 x 38) - 0.5
= 9
(c) If demand increases by 5:
QD = 5 + 18.5 - 0.25P = 23.5 - 0.25P
New equilibrium is when new QD = QS
23.5 - 0.25P = 0.25P - 0.50
0.5P = 24
P = 48
Q = 0.25P - 0.50
= (0.25 x 48) - 0.50 = 11.50
(d)
New QD = 23.5 - 0.25P
When QD = 0, 0.25P = 23.5
P = 94
This is the vertical intercept of demand curve.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.