Supply-demand-solutions PDF

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Supply and demand practice problems and solutions...

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SOLUTIONS BELOW Practice Problems - numerical Supply & Demand Instructions: First solve these problems on your own. Only after that should you look at the solutions. Don’t use a calculator. 1. Consider the market for backpacks at Hunter College. Suppose the supply curve is: S And the demand curve is:

Q

= 2P

QD = 100  3P

(a) Draw the supply and demand curves on a graph. (b) Solve for the equilibrium price and quantity. (c) Suppose there is a rise in the student population at Hunter, and the demand for backpacks changes to: QD = 200  3P Draw the new demand curve on your original graph. (d) Suppose the price is still at the previous equilibrium level. Then, will there be a shortage or a surplus? How big will the shortage or surplus be? (e) Solve for the new equilibrium price and quantity. 2. Consider the market for drinking water. Imagine that the demand curve for this is vertical (i.e. people will purchase a …xed amount no matter what the price is). The demand curve is: QD = 70

And the supply curve is:

QS = 3P  10

(a) Draw the supply and demand curves on a graph. (b) Solve for the new equilibrium price and quantity. ———————————Solutions: 1. (a) See part (c).

1

(b) You know that, in equilibrium, quantity supplied must equal quantity demanded:

QS

Now you can substitute

P

= 20

=

) )

QD 2P = 100  3P P = 20

into either the demand or supply curve to get

the equilibrium quantity. This gives (c)

Q = 40.

P

200/3

Supply New Demand

100/3 Old Demand

100 (d) At a price of

20,

Q

QS = D Q = 200 

the quantity supplied will be the same as before:

2P = 40. But the quantity demanded will be higher than 3P = 140. So, there will be a shortage of 100 backpacks.

(e) Solving for the new equilibrium price and quantity:

QS

And this gives us

200

=

) )

QD 2P = 200  3P P = 40

Q = 80.

2. (a)

2

before:

P Demand Supply

10/3

70 (b) Equilibrium:

QS

And

=

) )

QD 3P  10 = 70 80 P= 3

Q = 70.

3

Q...