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Homework answers / question archive / Find the equilibrium price and quantity in each of the following markets: i) Qd= 6-2p, Qs=3+p ii) Qd=10-5p, Qs=3+p iii) Qd =1-p, Qs=3+p
Find the equilibrium price and quantity in each of the following markets:
i) Qd= 6-2p, Qs=3+p
ii) Qd=10-5p, Qs=3+p
iii) Qd =1-p, Qs=3+p. Comment on the situation in market
What would be the effect of a purchase/sales tax of 1 cent per item in (ii) above, if p measures price in cents? Explain your answer.
Equating quantity demanded to quantity supply, we get:
(i) 6-2p = 3+ p, or
p = 1
Q = 4
(ii)10-5p = 3+p, or
p = 7/6
Q = 25/6
(iii)Equilibrium in this market is not possible as price turns out to be negative when we equate market demand to market supply.
If a tax of 1 cent is levied, then: Pd = 1+ Ps, where Pd is the price paid by consumers and Ps is the price received by suppliers.
(i) 6-2Pd = 3+ Ps, or
6-2(1+Ps) = 3+ Ps,
Ps = 1/3
Pd = 4/3
(ii)10-5(Pd) = 3+Ps,or
10-5(1+Ps) = 3+Ps,or
Ps = 1/3
Pd = 4/3
(iii)Equilibrium in this market is not possible as price turns out to be negative when we equate market demand to market supply.
