Given the following Demand and Supply functions answer questions a thru d. Qd=12

Question

Given the following Demand and Supply functions answer questions a thru d. Qd=120-2P+5I Qs=-10+4P-3W where P=$3 is the price of the good. I=$100 per capital consumer income W= $50 wage rate a. Derive the demand and supply curves (qd and qs). b. What is the equilibrium price and quantity? c. If P=$160 what will be the forecast of quantity demanded and quantity supplied? d. At the price of $160 will there be either a surplus or shortage. Which is it and what is the amount?

Explanation / Answer

for equilibrium condition demand must be equal to supply so, Qd=Qs now, =>Qd=120-2P+5I---------------------1 => Qs=-10+4P-3W------------------------------2 so, 120-2P+5I =-10+4P-3W I=$100 per capital consumer income W=$50 wage rate hence =>120-2P+5*100 =-10+4P-3*50 =>120-2P+500=-10+4P-150 =>620-2P=4P-160 =>6P=780 hence equilibrium price P=$130 now putting value of P in equation 1 and 2 we get Qd=360=Qs . for price P =$160 Qd=120-2P+500 =120-2*160+500 =620-320 =300 Qd =300 Qs=-10+4P-150 =-10+4*160-150 =$480 so, Qs =480 As Qs is more so there will be surplus of 480-300 =$180

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