# Calculating the equilibrium parameters

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?

Show your work.

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#### Solution Preview

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 Summary

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