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Demand and Supply Scenario and Elasticities

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1. A product's Demand Curve is : Qd = 50 - 2P, and Supply Curve is Qs= 40 + P.
a. When P=$10, what is the difference, if any, between Qd and Qs?
b. When P=$2, what is the difference , if any, between Qd and Qs?
c. What are the equilibrium values of P and Q?

2. The demand curve is: Qd = 500 - 1/2P.
a. Calculate the (point) price elasticity of demand when price is $100. Is demand elastic or inelastic?
b. Calculate the (point) price elasticity of demand when price is $700. Is demand elastic or inelastic?
c. Find the point at which point elasticity is equal to -1.

3.Demand and supply in the wheat market are given by:
Qd = 2000 - 1000P
Qs = -500 + 1000P
Where Q is millions of bushels and P is price per bushel.
a. Find the equilibrium price and quantity.
b. Suppose that the government wishes to support farm income and thus sets a price floor of $1.50/bushel. Find the size
of the farm surplus.
c. What is the cost of this program to the government?

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Solution Summary

There are three numerical problems about demand supply situations and elasticities. Step by step methods to find shortages, surplus quantities and point elasticities are explained. At last effect of support price on demand and supply is explained.

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Please refer attached document for complete solution. Some of work done with the help of Equation editor may not print here.

1. A product's Demand Curve is: Qd=50 - 2P, and Supply Curve is Qs= 40 + P.

a. When P=$10, what is the difference, if any, between Qd and Qs?

At P=$10,
Qd=50-2*10=30,
Qs=40+10=50
At Price=$10, Qs>Qd i.e. surplus of 50-30= 20 units.

b. When P=$2, what is the difference, if any, between Qd and Qs?
At P=$2
Qd=50-2*2=46
Qs=40+2=42
At Price=$2, Qd>Qs, i.e. there is a shortage of 46-42=4 units

c. What are the equilibrium values of P and Q?
For equilibrium to happen Qd=Qs
i.e. 50-2P=40+P
i.e. 3P=10
P=10/3=3.33
Qd=50-2*3.33=50-6.67=43.33 ...

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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