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Consider a perfectly competitive market with demand curve given by QD = 100 2P and supply curve given by QS = 50 + 3P. a.)
Consider a perfectly competitive market with demand curve given by QD = 100 2P and supply curve given by QS = 50 + 3P. a.) At a price of 20, what is QD? What is QS? Does the market clear? If not, is there a shortage or a surplus? Illustrate this on a graph of supply and demand. b.) At a price of 5, what is QD? What is QS? Does the market clear? If not, is there a shortage or a surplus? Illustrate this on a graph of supply and demand. c.) At what price does the market clear? Solve for the equilibrium price and quantity, P and Q. Illustrate this on a graph of supply and demand. Consider equilibrium (P, Q) in the market from the problem above, with demand curve given by QD = 1002P and supply curve given by QS = 50+3P. Examine what happens when there is a supply increase such that the new supply curve in the market is given by Q0S = 60 + 3P. d.) Is the market still in equilibrium at the price P? Show this numerically and with a graph. e.) If there is a new equilibrium with the new supply curve, call it (P, Q) and find it. What does this show about the impact of an increase in supply on equilibrium price and quantity
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