The supply and demand functions for a certain product have the form Qd = 70-0.4p, Qs = -50 + 2p

The supply and demand functions for a certain product have the form Qd = 70-0.4p, Qs = -50 + 2p. Determine: a) The condition of market equilibrium (equilibrium price and equilibrium volume); b) The amount of government spending required to maintain equilibrium in the market at a fixed price of 80 rubles.

a) To find the equilibrium price and equilibrium quantity, it is necessary to equate supply and demand:

70 – 0.4p = – 50 + 2p;

2.4p = 120;

p = 50 rubles;

Now we substitute the price into one of the supply or demand functions and find the equilibrium quantity:

Q = – 50 + 2 * 50 = 50.

b) If the price is fixed at 80:

Q = 70 – 0.4 * 80 = 38 units – market demand;

Q = – 50 + 2 * 80 = 110 units – supply on the market;

There is a surplus of goods on the market: 110 – 38 = 72.

The amount of government spending = 72 * 80 = 5760 rubles.