Assume the following demand and supply equations: Qd: 23- 25p Qs: 11 + 15p (a) If a seller charges a price of 0

Marketing Jan 11, 2021

Assume the following demand and supply equations:

Qd: 23- 25p

Qs: 11 + 15p

(a) If a seller charges a price of 0.5 per unit, what will happen? (Show the exact amount of shortage or surplus)

(b) What is the equilibrium price and equilibrium quantity?

Expert Solution

a) If the seller charges a price of p = 0.5, the quantity demanded = 23 - 25 * 0.5 = 10.5. The quantity supplied = 11 + 15*0.5 = 18.5. The quantity supplied is higher than the quantity demanded by 18.5 - 10.5 = 8. So there is a surplus of 8 units.

b) The equilibrium price is given by the following equation:

23 - 25p = 11 + 15p
12 = 40p
p = 0.3

The equilibrium quantity = 11 + 15 * 0.3 = 14.5.

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