Answer to Question #166830 in Economics for Banda jackson

Question

 Assume the following market demand and supply functions

(a)  Graph the excess supply function.

(b)  Use the Taylor expansion of the excess supply function and find the first degree approximation for the market equilibrium price and quantity.

(c)  Write the linear expansion of the demand and supply functions separately and then solve the linear system for the market equilibrium price and quantity. Compare your results with those from part (b).

Answer 1

In an economy, excess supply or economic surplus is a situation in which the quantity of goods or services provided exceeds the volume of demand, and the price is higher than the equilibrium level determined by supply and demand. That is, the amount of the product that manufacturers want to sell exceeds the amount that potential buyers are willing to buy at the prevailing price. This is the opposite of economic scarcity (excess demand).