Suppose demand can be described with the equation Q = 900 ? 5P and supply with the equation Q = 100 + 5P
a. Determine the equilibrium price and quantity.
b. Determine the surplus or shortage if the price were $100.
a. Equate the supply and demand as follows:
100 + 5P = 900 ? 5P
800 = 10P
P = $80
Quantity is determined from the demand relationship by inserting $80 for P:
Q = 900 ? 5(80) = 900 ? 400 = 500
b. At a price of $100, the quantity demanded:
Q = 900 ? 5(100) = 900 ? 500 = 400
The quantity supplied:
Q = 100 + 5(100) = 100 + 500 = 600
The quantity supplied exceeds the quantity demanded by 200 . There is a surplus.
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