The demand and supply equations for the peach market are:
Demand: P = 24 - 0.5Q
Supply: P = -6 + 2.5Q
where P = price per bushel, and Q = quantity (in thousands).
a. Calculate the equilibrium price and quantity.
b. Suppose the government guaranteed producers a price of $24 per bushel. What would be the effect on quantity supplied? Provide a numerical value.
c. By how much would the $24 price change the quantity of peaches demanded? Provide a numerical value.
d. Would there be a shortage or surplus of peaches?
e. What is the size of this shortage or surplus? Provide a numerical value.
a. Quantity = 10 thousand bushels: {24 - 0.5Q = -6 + 2.5Q; 30 = 3Q; Q = 10}
Price = $19: {P = 24 - 0.5(10); P = 24 - 5; P = $19}
b. Quantity supplied would increase to 12 thousand bushels: {24 = -6 + 2.5Q; 30 = 2.5Q; Q = 12}
c. Quantity demanded would fall to zero bushels: {24 = 24 - 0.5Q; 0 = -0.5Q; Q = 0}
d. There would be a surplus.
e. Surplus = 12,000 - 0 = 12 thousand bushels.
You might also like to view...
What is an indifference curve? Can two indifference curves intersect? Explain your answer
What will be an ideal response?
An increase in the demand for dollars on the foreign exchange market, all else equal, will result in:
A) appreciation of the U.S. dollar and depreciation of the foreign currency. B) appreciation of the U.S. dollar and appreciation of the foreign currency. C) depreciation of the U.S. dollar and depreciation of the foreign currency. D) depreciation of the U.S. dollar and appreciation of the foreign currency.