Suppose that two consumers, Jeff and Walt, are the only consumers in the market

Question

Suppose that two consumers, Jeff and Walt, are the only consumers in the market for carrots. Jeff’s demand curve is given by Q_Jeff=10-2P and Walt’s demand curve is given by Q_Walt=15-3P.

a) Find the market demand curve for carrots.

b) Suppose the market supply curve is given by Q_S = 2P. Find the market equilibrium price and quantity.

c) Now suppose that a disease wipes out half of the markets carrot supply, so that the new supply curve is Q_S=P. Find the new equilibrium price and quantity. How do equilibrium price and quantity change?

Explanation / Answer

Ans a – Market Demand = Q1 + Q2 = 10 – 2P + 15 – 3P = 25 – 5P

Ans b – At equilibrium, Market Demand = Market Supply

Hence, 25 – 5P = 2P

P = 25 / 7 = $3.58

Q = 25 – 5 x 3.58 = 7.16

New equilibrium is 25 – 5P = P

P = 25 / 6 = $4.16

Q = 25 – 5 x 4.16 = 4.2

Change in equilibrium price = 4.16 – 3.58 = $0.58

Change in quantity = 7.16 – 4.2 = 2.96

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