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.
?
What will be an ideal response?
| 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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