Suppose that the demand and supply functions for good X are Qd= 298-8P Qs= -32 +

Question

Suppose that the demand and supply functions for good X are Qd= 298-8P Qs= -32 + 4P

a. Find the equilibrium price and quantity?

b. What is the market outcome if price is $35? What do you expect to happen? Why?

c. What is the market outcome if price is $29? What do you expect to happen? Why?

d. What happens to equilibrium price and quantity if the demand function becomes while the supply remains the same? .

e. What happens to equilibrium price and quantity if the supply function becomes , for the original demand function ?

Explanation / Answer

Qd = 298 - 8P

Qs = - 32 + 4P

(a) In equilibrium,

Qd = Qs

298 - 8P = - 32 + 4P

12P = 330

P = 330 / 12 = 27.5

Q = 298 - (8 x 27.5) = 298 - 220 = 78

(b) P = 35

Qd = 298 - (8 x 35) = 298 - 280 = 18

Qs = - 32 + (4 x 35) = - 32 + 140 = 108

Since Qd < Qs, there is a surplus in the market. Over time, a surplus will cause equilibrium price to fall to restore equilibrium.

(c) P = 29

Qd = 298 - (8 x 29) = 298 - 232 = 66

Qs = - 32 + (4 x 29) = - 32 + 116 = 84

Since Qd < Qs, there is a surplus in the market. Over time, a surplus will cause equilibrium price to fall to restore equilibrium.

(d) & (e): Revised demand & supply functions not provided.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.