Question

Consider the market for coconuts in a small island nation. The domestic demand curve (in cedis) is P = 140 – 4QD and the domestic supply curve is P = 20 + 2QS.

a. What is the market equilibrium price and quantity?

b. If the government, hoping to help poor consumers, imposes a price ceiling of $40, what will be the shortage of coconuts in the market? Graph your response.

Answer 1

$140-4Q_d=20+2Q_s,$

$Q_d=Q_s=Q,$

$120=6Q,$

$Q_d=Q_s=20,$

$P=60.$