equilibrium
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Suppose that the demand for video rentals per week is given by Qd^videos = 18 - 4P^videos, and the supply of videos by your local video store per week is Qs^videos = 6 + 2P^videos.
a) Calculate the equilibrium price and quantity in this market.
b) If the price = $3, then what is happening in this market? Briefly explain.
c) If the price = $0.50, then what is happening in this market? Briefly explain.
d) If the demand function changes to Qdvideos = 26 - 6Pvideos, given the original supply function, what is the new equilibrium price and quantity?
Please show work
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Solution Summary
The new equilibrium price is attained.
Solution Preview
The demand function is given as
QD = 18 - 4P
The supply function is
QS = 6 + 2P
a. To find the equilibrium all we need to do is solve the given set of equations, that is put QD = QS and solve for P. This gives
QD = QS
or 18 - 4P = 6 + 2P
or 12 = 6P
or 2 = P
Now plug this into either of the two equations ...
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