Evaluate the equilibrium price and quantity, Microeconomics

 

Evaluate the equilibrium price and quantity

(a) Find the equilibrium price and quantity

(b) If government in trying to control the price of the good fixes the price at c550

(i) Explain the type of price control the government has applied using an appropriate diagram.

(ii) Calculate and explain the type of excess which will result from the price control.

(iii) Give three (3) problems that the excess in (ii) may cause.

Answer

 

453_Evaluate the equilibrium price and quantity.png

(a) Given the demand function QD= -3P + 5000 and the supply function as

Qs = 2P + 2000. At equilibrium , QD = QS

-3 + 5000 = 2P + 2000

5000 - 2000 = 2P + 3P

3000 = 5P

3000/5 = P P = c600

Therefore

Q = 2(600) + 2000

Q = 1200 + 2000

Q = 3200 bags/units

The equilibrium price and quantity are c600 and 3200 units respectively.

 

 

(N) or cedi (C) for price

(i) If government fixes the price of the good at c550, this will be a maximum price control. This is because c550 is below the equilibrium price of c600.

(ii) At the price of c550.

QD = -3P + 5000 = -3(550) + 5000 = -1650 + 5000 = 3350 bags/units

Qs = 2(550) + 2000 =1100 + 2000 = 3100 bags/units

Excess demand = QD – Qs = 3350 – 3100 =250 bags/units

At the maximum price of c550, quantity demanded of 3350 bags/units exceeds the quantity supplied of 3100 bags/units resulting in an excess demand of 250 bags/units .

 

 

Posted Date: 1/2/2013 6:48:47 AM | Location : United States







Related Discussions:- Evaluate the equilibrium price and quantity, Assignment Help, Ask Question on Evaluate the equilibrium price and quantity, Get Answer, Expert's Help, Evaluate the equilibrium price and quantity Discussions

Write discussion on Evaluate the equilibrium price and quantity
Your posts are moderated
Related Questions
Non-Tradable:Some products can't be transported over long distances or otherwise sold to consumers from far-off locations. These products (including some goods as well as most serv

Budget Constraints   * The Budget Line - The budget line indicates all the combinations of 2 commodities for which total money spent equals the total income. * The Budget

Explain the role of managerial ecnomist in kissan &dipsy fro ub group

Q. Defien Hyper - Inflation? Hyper-Inflation:It's a situation of extremely rapid inflation (reaching 100% per year or more), frequently resulting from a condition of political

Explain the difference between elastic and fixed supply

Warehousing Facilities: These should be expanded in important commercial centres abroad, specially for fast-moving consumer goods. Nowadays, foreign buyers are reluctant to keep

How to use Demand and Supply tools to analyze the case of the Egyptian labor market?

ive been asked to compare shapes of graphs e.g. constant slopes increasing, decreasing, inelastc using the concepts of marginal and average changes?

I have to do a project on the blocks in periodic tables. How specifically should I describe them? Should I describe each block''s characteristics, and if so, which ones? P.S. This

Return on Equity: It's a measure of business profitability equal to net after-tax income divided by average level of shareholders' equity in the business. Sales Tax: A tax im