Question 1

(a)Define equilibrium price and equilibrium quantity with a suitable diagram.

(b)The demand function for ice cream cones is P = 800 - 2Q, and the supply function of ice cream cones is P = 200 + 1Q.

The price of a cone is expressed in cents, and the quantities are expressed in cones per day.

(i)Determine the equilibrium price and quantity.

(ii)Draw the curve and show the equilibrium price and quantity according to answer in B(i).

(iii)What will happen in the market when the market price is lower than theequilibrium price? Explain.