Question

The market for meat is represented by the following demand and supply equations: Demand: Qp = 400 - 10 P Supply: Qs = -200 + 20 ⓇP 1. Draw the demand and supply in the same graph where price and quantity on the vertical and horizontal axis respectively 2. Calculate the equilibrium price and quantity 3. Calculate the Consumer and producer surplus at the equilibrium. 4. What would happened to the new equilibrium price and quantity if the price of the land where the cattle is kept increases? Show it graphically

Answer 1

Ans) 1) At equilibrium, Qd = Qs

400 - 10P = -200 + 20P

400 + 200 = 20P + 10P

600 = 30P

P = 20

To determine the equilibrium quantity, put value of P in either demand or supply equation.

Qd= 400 - 10P = 400 - 10×20 = 200 units

Qs = -200 + 20P = -200 + 20×20 = 200units.

So, equilibrium price is $20 and equilibrium quantity is 200 units.

2) Now,

At Q= 0 Qs= -200 + 20P

Qd = 400 -10P 0= -200 + 20P

0= 400 - 10P 200 = 20P

P = 40 P = 10

We have got, two points for demand curve ie (200,20).and (0,40)

We have also got two points for supply curve i.e (200,2) and (0,10)

Lets draw the graph using these two ÷

consumer surplus Equilibrium producer surplus डे

Consumer surplus = 1/2× base × height = 1/2× 200 × (40-20) = $2000

Producer surplus = 1/2× base × height = 1/2× 200×(20-10) = $1000

3) When price of land increases, input cost increases for meat. Supply curve will shift to the left and new equilibrium will be higher than the initial equilibrium. Price will increase and quantity will decrease.

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