Answer to Question #266320 in Microeconomics for Tas

Question #266320

The inverse of the demand and supply functions for shoes is given by the

following equations respectively:

Demand: P = 1400 - 2Qd

Supply: P = 200 + 1Qs

1.1. Calculate the equilibrium price and quantity of shoes.

(5)

1.2. Assume that the price of shoes is R700. Use your answer in 1.1 to explain

the resulting situation in the market for shoes, and how equilibrium will

be restored without government intervention, ceteris paribus.

(5)



1
Expert's answer
2021-11-15T10:16:15-0500

Solution:

1.1.). At equilibrium: Qd = Qs

1400 – 2Q = 200 + 1Q

1400 – 200 = 1Q + 2Q

1200 = 3Q

Q = 400

Equilibrium quantity = 400

Substitute in either the demand or supply function to derive an equilibrium price:

P = 1400 – 2Qd = 1400 – 2(400) = 1400 – 800 = 600

Equilibrium price = 600

 

1.2). The price of R700 will be above the equilibrium price, which means that the quantity of shoes supplied will exceed the quantity of shoes demanded, resulting in a shoe surplus in the market.

 

The market equilibrium will restore itself since the incentives built into the structure of demand and supply will create pressures for the price to decrease toward the equilibrium.


Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be the first!

Leave a comment

LATEST TUTORIALS
New on Blog
APPROVED BY CLIENTS