Demand function: Qd = -4 + 3P, supply function: Qs = 20-P. Product demand increased by 20%. What will happen

| June 19, 2021 | education

Demand function: Qd = -4 + 3P, supply function: Qs = 20-P. Product demand increased by 20%. What will happen a) With the Equilibrium Price? b) with sales volume? c) with the proceeds from the sale of products?

Equilibrium parameters of this market:
QD = QS.
-4 + 3P = 20 – P.
4P = 24.
P = 6 – equilibrium price.
R: QD = QS -4 + 3 * 6 = 20-6 = 14 – equilibrium sales volume.
Q = 14 – equilibrium sales volume.
W = P * Q = 6 * 14 = 84 – the seller’s income.
If the price of demand for products increased by 20%, then:
6 * 20% + 6 = 7.2 – new equilibrium price
The volume of demand will be: QD = -4 + 3 * 7.2 = 17.6.
Supply volume: QS = 20 – 7.2 = 12.8.
So, the volume of supply will be lower than the volume of demand. There is a shortage of goods in the amount of:
QD – QS = 17.6-12.8 = 4.8.
W = P * Q = 7.2 * 12.8 = 92 – the seller’s income.



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