Suppose That Demand and Supply for Cookies Can Be Written$$\mathrm { Q } ^ { \mathrm { d } } = 50 - \mathrm { P } ; \mathrm { Q } ^ { \mathrm { s } } = \mathrm { P }$$

Question

Examlex · Accepted Answer

The Answer is The equilibrium price and quantity at the original levels of demand and supply can be computed as:

50 - \mathrm { P } = \mathrm { P }

(setting quantity demanded equal to quantity supplied) so that

\mathrm { P } ^ { * } = 25

. Turning now to equilibrium quantity:

Q = 50 - 25

(Substituting

P ^ { * }

into the equation of demand), or

Q ^ { * } =

25 (solving for equilibrium quantity,

Q ^ { * }

). With the new equation for demand, we can compute the new equilibrium price and quantity as follows:

100 - \mathrm { P } = \mathrm { P }

(setting quantity demanded equal to quantity supplied) so that

\mathrm { P } ^ { * * } = 50

(solving for the new equilibrium price,

\mathrm { P } ^ { * * }

) and

\mathrm { Q } = 100 -

50 (substituting the new equilibrium price into the new demand), or

\mathrm { Q } ^ { * * } = 50

(solving for the new equilibrium quantity,

\mathrm { Q } ^ { * * }

). There has been an outward shift in demand that has caused equilibrium price and quantity to rise as demand intersects supply farther to the north-east. Response
Set demand equal to supply to get the equilibrium price and quantity in the two cases. Now, graph the problem. When demand shifts out, equilibrium price and quantity must rise (except if the Supply Curve is perfectly inelastic (i.e., vertical), in which case only the equilibrium price would increase, but the equilibrium quantity would remain unchanged.). You can check that you have computed the equilibrium correctly by checking that the price and quantity you obtain satisfy both the demand and the supply equations.

Suppose That Demand and Supply for Cookies Can Be Written $\mathrm { Q } ^ { \mathrm { d } } = 50 - \mathrm { P } ; \mathrm { Q } ^ { \mathrm { s } } = \mathrm { P }$

Definitions:

Suppose That Demand and Supply for Cookies Can Be Written Qd=50−P;Qs=P\mathrm { Q } ^ { \mathrm { d } } = 50 - \mathrm { P } ; \mathrm { Q } ^ { \mathrm { s } } = \mathrm { P }Qd=50−P;Qs=P

Definitions:

Suppose That Demand and Supply for Cookies Can Be Written $\mathrm { Q } ^ { \mathrm { d } } = 50 - \mathrm { P } ; \mathrm { Q } ^ { \mathrm { s } } = \mathrm { P }$