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Calculating the equilibrium parameters

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Initial demand for bottled water in a country is : QD0=300-200p. The supply of bottled water id : Qs=-100+600p. Q is in gallons per day, and p is dollars per gallon.

A hurricane hits and demand for bottled water increases to QD'=500-200p.
Which policy is in the best interest of consumers as a group

1. Setting a price ceiling at the old equilibrium price or
2. Allowing the price to rise to a new equilibrium?

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The solution describes the steps to calculate equilibrium parameters in old and changed scenario.

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Let us first calculate initial equilibrium price and quantity. Put QD0=Qs
300-200p=-100+600p
800p=400
p=0.5

Qs=-100+600*0.5=200 gallons per day
QD0=300-200*0.5=200 gallons per day

Initial equilibrium price is $0.5 per gallon and equilibrium quantity is 200 gallons per day.

In the new situation, let us calculate new ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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