Answer to Question #265411 in Economics of Enterprise for faysal

Question

QDA = 8000 - 1000Px, QSA= - 4000+2000Px

i) Find out the market clearing price and quantity.

ii) Plot, on one set of axes, the market demand curve and the market supply curve

for commodity A and show the equilibrium point.

iii) Is the equilibrium stable? Explain.

Answer 1

i) Market clearing price and quantity;

At Equilibrium, QDA=QDS

8000-1000Px=-4000+2000Px

P_x=$\frac{12000}{4000}=4$

QDA=QDS=8000-10000(4)=4,000

Market clearing price and quantity is 4 and 4,000 respectively.

II)We use the data below to plot the curves;

Graphs;

iii)Is the equilibrium stable? Explain.

The equilibrium is stable since the market supply and demand balance each other.