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Demand and Supply Analysis: Calculating Equilibrium Price and Quantity of Wine

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Suppose the supply of wine by domestic firms is QSD = 5 + P and the supply of wine by foreign firms is QSF = 5 + P. The domestic demand for wine is QD = 40 - P.

a. In the absence of a quota, what is the equation for the total supply of wine? Show your work.
b. What are the equilibrium price and quantity of wine? Show your work.
c. Suppose a quota of 5 units is imposed. What is the new equation for the total supply of wine? Show your work.
d. Determine the equilibrium price and quantity of wine in the domestic market with the quota of 5 units.

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Solution Summary

The solution depicts the steps to calculate equilibrium price and quantity of wine with and without presence of quota.

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a. In the absence of a quota, what is the equation for the total supply of wine? Show your work.
QSD=5+P
QSF=5+P
Total supply=QS=QSD+QSF=5+P+5+P=10+2P

b. What are the equilibrium price and ...

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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