{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

PAM200_Section1_Solutions

PAM200_Section1_Solutions - PAM200 Section 1 Problem 1.5 We...

This preview shows pages 1–2. Sign up to view the full content.

PAM200 – Section 1 Problem 1.5 We have 20 = I so P P Q d - = + - = 30 20 10 and s Q P = (which remains unchanged for all level of I, why?). We can graph these 2 equations with Price on the vertical axis and Quantity on the horizontal axis: The equilibrium will occur when d Q = s Q , we need to solve this. We will find that 15 = P and 15 = Q at the equilibrium. We have s d Q Q for a price of 18 which implies an excess supply of wool. Sellers will not sell all of their wool, so they will reduce price and the same time lower their quantity supplied. At the lower price, consumers will purchase more. This process will lead to the equilibrium price and quantity. We have d Q > s Q , for a price of 14 which implies an excess demand of wool. Buyers want to buy more wool at this price level, so they will bid up and at the same time lower their quantity demanded. At the higher price, sellers will supply more output. This process will lead to the equilibrium price and quantity.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 4

PAM200_Section1_Solutions - PAM200 Section 1 Problem 1.5 We...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online