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Calculating Equilibrium Prices and Quantity

Suppose the demand for guitars in State College is given by Qd = 9000 - 12P where Qd is the quantity demanded, and P is the price of guitars. Also, suppose the supply of guitars is given by Qs = 9P - 3852, where Qs is the quantity supplied of guitars.

a)Calculate the equilibrium price of guitars and the equilibrium quantity of guitars in State College. Show your work.

b)Suppose the actual price of guitars is $600. Determine if there is a shortage, a surplus, or if the market is in equilibrium at a price of $600. If there is a shortage or surplus, calculate how much the shortage or surplus is.

c)Given your answer to b), is the price of guitars likely to rise, fall, or stay the same?

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Solution Preview

a) Calculate the equilibrium price of guitars and the equilibrium quantity of guitars in State College. Show your work.

Qd = 9000-12P
Qs = 9P-3852

Equilibrium will exist for a price P for which Qd=Qs
9000-12P = 9P-3852
21P=3852+9000
21P ...

Solution Summary

Solution describes the steps in determining equilibrium price and quantity for guitars in state college. It also studies the market behaviour at a given price level.

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