1. Suppose market demand for tires is given by the equation Q D = 12 - P.

Tires
are supplied according to the market supply equation Q S = 2P.
a. Calculate the equilibrium price and quantity, consumer surplus, and producer surplus
in the market for tires. Graph your results. (equ price =$4, equ quantity = 8, CS = $32,
PS = $ 16)

Given,
Demand function, QD = 12 P
Supply function, Qs = 2P
At equilibrium,
QD=Qs
Or,12-P=2P
or,12=2P+P
or,3P=12
P=12
Equilibrum Price =4
Now for equilibrium quantity we just put the equilibrium price in either of the
function.Let us put it in demand function.
=12-P
=12-4=8

Finding demand coordinate,

When Qd=0 then
0=12-p
P=12
Demand coordinate is (0,12)

And when Qs=0 then 0=2P

P=0

Supply coordinate (0,0)

Now,

2. Find the equilibrium price and quantity under the following information:
a) Qd = 24 2 P, and Qs = - 5 + 7P
(equ price = 3.22, equ quanity = 17.5 units)
b)Qd = 3- P2, and Qs = 6P 4 (equ price = 1, equ quanity = 2 units)
c) Qd = 12/P, and Qs = P -1 (equ price = 4, equ quanity = 3 units)

Ans no:a)
At equilibrium Qd =Qs
So,
24-2p=-5 +7p

24+5=7p+2p
29=9p
P=3.22
Now , putting the equilibrium price in demand function to find equilibrium quantity,
=24-2p
=24-2*3.22
=17.55 units
b) At equilibrium Qd=Qs so,
3-P2=6P-4
Or,P2 +6P-4-3=0
Or,P2+6P-7=0
Or,P2+7P-P-7=0
Or,P(P+7)-1(P+7)=0
Or,(P-1) (P+7)=0
Or,P=1
Or,P=-7 (We ignore the negative value since price cannot be negative)
Hence,P=1 is the equilibrium price.
Now , putting the value of equilibrium price in demand equation we get,
=3-P2=3-12= 3-1=2.
Our, equilibrium quantity is 2 units

Ans: No:c) At equilibrium Qd=Qs so,

12/P=P-1
0r,12=P(P-1)
Or, 12=P2-P

Or, P2-P-12=0\
Or,P2-4P+3P-12=0
Or,P(P-4)+3(P-4)=0
Or,(P+3) (P-4)=0
Either,P+3=0
P=-3(Price cannot be negative so we ignore it)
Or,P-4=0
Or,P=4
Hence, the equilibrium price will be 4.
Now, putting the value of equilibrium price in demand function, we get,
Equilibrium Quantity=12/4=3
Therefore, (Equilibrium Quantity,Equilibrium Price)=(3units,4)

3. A market consists of three individuals A, B, and C, whose demand equations are as

follows:
Qa = 22.5 0.75 P, Qb = 30 P, Qc = 37.5 1.25
Find the market demand equation. If the market supply equation is Q s = 7P 10, calculate the
equilibrium price and quantity.
(Q = 90 3P, eq price = 10, eq quanity = 60)

Here, we have to find first market demand equation so we simply add,

Qd=Qa+Qb+Qc
=22.5 0.75 P+30-P+37.5-1.25P
=90-3P
Now at equilibrium,

Qd=Qs
90-3P=7P-10
90+10=7P+3P
100=10P
P=10 (0ur Equilibrium price).
Now, putting equilibrium price in demand equation we get,

=90-3(10)=90-30=60 (Our equilibrium quantity)

4. A market consists of three individuals A, B, and C, whose demand equations are as

follows:
A: P = 35 0.5 QA
B: P = 50 0.25 QB
C: P = 40 2 QC
The industry supply equation is given by Qs = 40 + 3.5 P
a) Determine the equilibrium price and quantity. (eq price =25 , eq quanity = 127.5)
b) Determine the amount that will be purchased by each individual. (A: 20, B:100 , C:7.5 )

Market demand is the horizontal summation of individual demand.

So, first find our indidual demand
QA=70-2P
QB=200-4P
QC=20-0.5P

QD= QA+ QB+ QC=290-6.5P

a. QS =QD (Since at equilibrium quantity demanded = quantity supplied)

Equating the above equation , we get
290-6.5P=40+3.5P
290-40=3.5P+6.5P
250=10P
P=25
Now, putting the value of equilibrium price in market demand equation we get
Equilibrium Quantity=290-6.5(25)
Equilibrium Quantity=127.5

5. Demand function is P = 60 Q. Calculate the consumer surplus consumer surplus if

price is 30. (CS = 450)

Given,
Demand function Qd=60-P
P=30
We know that,
Qd=60-30=30
Now,
Consumer Surplus=1/2 *base*height=1/2*30*30=450

6. If the inverse demand function is P = 60 Q, and the supply function is Q = P, what is the
equilibrium? (equ price = 30, and equ quantity = 30)
Given,
Inverse demand function (P)=60-Q
Market demand function Qd=60-P
Supply functgion Q=P
At equilibrium,
Qd=Qs
60-P=P

2P=60
P=30 is the equilibrium quantity
Now, since in supply function Q=P we can directly say that equilibrium quantity=30
7. Suppose the generalized demand function fir good X is
QX = 60 2 Px + 0.01 M + 7 PR
Where, QX = quantity of X demanded
Px = Price of X
M = consumers average income
PR = price of related good.
a) Is good X normal or inferior? Why? (X is normal good)
b) Are goods X and R substitutes or complements? Why?
substitutes)

( X and R are