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Midterm1_v1_Fall2013_Solution

# 5 4 refer to the figure below the graphs

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Unformatted text preview: market. Price Quantity Demanded Quantity Supplied (\$) (units) (units) 0 50 0 2 40 15 4 30 30 6 20 45 8 10 60 a) Compute the equation for demand curve. Find the equation between e.g., (50,0) and (40, 2) slope = - 2/10 =- 0.2, y- intercept = 0- (- 0.2 ×50) = 10. Therefore PD = 10 - 0.2QD. b) Compute the equation for the supply curve. Find the equation between e.g., (0,0) and (15, 2) slope = 2/15 = 0.133, y- intercept = 0- (0.133 × 0) = 0. Therefore PS = 0.133QS. c) What is the equilibrium price and equilibrium quantity in this market? Equilibrium PD = PS 10 - 0.2Q = 0.133Q Q = 30 units and P = \$4. d) At a price of \$2, will there be a surplus or shortage of units in this market? A shortage since QD > Q...
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