Answer to Question #290913 in Economics for Nana Serwaa Dadzie

Question

QUESTION 1

The market demand and supply equations for a product are: QD = 25 - 3P and QS = 10 + 2P, where Q is quantity and P is price.

(a) What are the equilibrium price and quantity for this product?

(b) Formulate the inverse demand function.

(c) If income rises, leading to new demand of QD = 40 - 3P, find new P* and Q*

(d) Now, suppose the government enacts legislation that imposes a price ceiling equivalent to

the original equilibrium price. What is the result of this legislation?

(e) Determine the quantity demanded, the quantity supplied, and the magnitude of the

surplus if a price floor of $9 is imposed in this market.

(f) Determine the quantity demanded, the quantity supplied, and the magnitude of the

shortage if a price ceiling of $1.5 is imposed in this market. Also, determine the full economic price paid by consumers.

Answer 1

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