Consider a market where the demand and supply for the good are described by the following equations: begin mathsize 14px style straight Q subscript straight D space equals space 225 space minus space 3 straight P end style and begin mathsize 14px style straight Q subscript straight S space equals space minus space 22.5 space plus space 1.5 straight P end style If the government implements a price ceiling of $45, this will result in…
Answer (Expert Verified)
Based on the supply and demand expressions given, and the price ceiling imposed, the result would be a shortage of 45 units.
The given expressions are:
Qd = 225 + 22.5
Qs = -22.5 + 1.5p
What would be the equilibrium price?
Quantity supplier = Quantity demanded
-22.5 + 1.5p = 225 – 3p
1.5p + 3p = 225 + 22.5
4.5p = 247.50
p = 247.50 / 4.5p
p = $55
What is the shortage or surplus?
Shortage = Quantity demanded – Quantity supplied
= (225 + 22.5 x 55) – (-22.5 + 1.5 x 55)
= 90 – 45
= 45 units
There will be a shortage of 45units.