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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Suppose the price is $10, the quantity supplied is 50 units, and the quantity demanded is 100 units. For every $ 1 rise in price, the quantity supplied rises by 5 units and the quantity demanded falls by 5 units. What is the equilibrium price and quantity?

To determine

Calculation of equilibrium price and quantity.

Explanation

The change in demand due to changes in price can be calculated using the following formula:

Change in demand=Inital demand(Change in quantity)×Change in price        (1)

Substitute the respective values in Equation (1) to calculate the change in demand for increasing the price by $1.

Change in demand=100(5)×1=1005=95

When the price increases by $1, the quantity demand would decrease to 95 units.

The change in supply due to changes in price can be calculated using the following formula:

Change in supply=Inital supply+(Change in quantity)×Change in price        (2)

Substitute the respective values in Equation (2) to calculate the change in supply for increasing the price by $1

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