Suppose that the demand for video rentals per week is given by Qdvideos = 18 - 4

Question

Suppose that the demand for video rentals per week is given by Qdvideos = 18 - 4Pvideos, and the supply of videos is Qsvideos = 6 + 2Pvideos.


a) Calculate the equilibrium price and quantity in this market.

b) If the price = $3, then what is happening in this market? Briefly explain.


c) If the price = $0.50, then what is happening in this market? Briefly explain.


d) If the demand function changes to Qdvideos = 26 - 6Pvideos, given the original supply function, what is the new equilibrium price and quantity?

Explanation / Answer

a) P ad Q are for videos. for equilibrium, demand = supply. => 18-4P = 6+2P => 6P = 12 => P = 2 ($) (ANSWER) and Q = 18-4*2 = 10 (ANSWER) b) If P = $3, Q(demand) = 18-4*3 = 6 Q(supply) = 6 +2*3 = 12 So, there is excess supply over demand. (ANSWER) c) If P = $0.5, Q(demand) = 18-4*0.5 = 16 Q(supply) = 6 +2*0.5 = 7 So, there is shortage in supply over demand. (ANSWER) d) If Q = 26-6P (for demand) then, 26 - 6P = 6 +2P (for equilibrium) => 8P = 20 => P = 2.5 ($) (ANSWER) and Q = 26 - 6*2.5 = 26 - 15 = 11 (ANSWER)

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