The function of the population’s demand for a product is Qd = 18-2P, and the supply function for this product is Qs = 2P + 2. Suppose the government has set a fixed price for this product at 7 rubles. Draw a conclusion about the economic consequences of this decision.
Qs = 2 × P +2
Qd = 18 – 2 × P
The government has set a fixed price
P1 = 7
Substitute a fixed price into the supply function
Qd = 18 – 2 × 7 = 4
Substitute a fixed price into the demand function
Qs = 2 × 7 +2 = 16
Determine the size of the surplus
Qs – Qd = 16 – 4 = 12
Conclusion: after the state fixed the price at a level above the equilibrium level, then the supply of this good in the market began to exceed the volume of demand. In other words, the market is faced with a surplus of 12 in magnitude.
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