2 Analyze the following demand and supply equations to answe

2. Analyze the following demand and supply equations to answer the questions. Demand Equation: Qd- 100-4P Supply Equation: Qs 10 6P a. What is the equilibrium price? What is the equilibrium quantity? Hint: Equate Qd Qs. Solve for the equilibrium price and then the quantity b. Assume the government places a price ceiling at $7 in the market. What is quantit demanded? What is quantity supplied? Is there a shortage or a surplus?

Solution

a) At equilibrium, Qd = Qs

i.e. 100-4P = 10 + 6P

Or, P* = 9 and, Q* = 10 + 6*9= 64.

b) At P = 7,

Quantity demanded = 100 - 4*7 = 72

Quantity supplied = 10 + 6*7 = 52

Hence, shortage = 72 - 52 = 20.

Thanks!