## Practice question: linear demand and supply

The daily supply and demand curves for apples are given by

Qs = -50+40P Qd = 100-10P

Where Qs and Qd are the quantities in thousands of kilos and P is the price per kilo in $.

a) Calculate Qs and Qd at a price of $6 per kilo.

b) Use the equations to calculate the equilibrium price and quantity.

c) Graph the two curves on graph paper. Identify the Q intercept for the demand curve, the P intercept for the supply curve and the equilibrium price and quantity.

d) Calculate the value of the consumer surplus and the producer surplus at the equilibrium price.

e) Imagine the government had imposed a price floor of $5 per kilo to protect apple growers.

i. Calculate the new levels of consumer surplus and producer surplus.

ii. Calculate the deadweight loss.

iii. If the government has pledged to buy up the resulting surplus of apples produced at this price, how much must they spend.

A hail storm damages the apple crop and decreases the supply of apples by 30,000 kilos at any price.

f) State the equation for this new supply curve.

g) Draw the new supply curve (on the same graph) and identify the new P intercept.

h) Explain, with reference to the figures, why the price that you calculated in part (b) is no longer the equilibrium price.

i) Calculate the new equilibrium price and quantity below (show your working) and identify both of these on your graph.

j) If the hail storm caused a decrease in supply of 30,000 kilos, explain why the new equilibrium quantity is not 30,000 kilos lower than the original equilibrium quantity.

Qs = -50+40P Qd = 100-10P

Where Qs and Qd are the quantities in thousands of kilos and P is the price per kilo in $.

a) Calculate Qs and Qd at a price of $6 per kilo.

b) Use the equations to calculate the equilibrium price and quantity.

c) Graph the two curves on graph paper. Identify the Q intercept for the demand curve, the P intercept for the supply curve and the equilibrium price and quantity.

d) Calculate the value of the consumer surplus and the producer surplus at the equilibrium price.

e) Imagine the government had imposed a price floor of $5 per kilo to protect apple growers.

i. Calculate the new levels of consumer surplus and producer surplus.

ii. Calculate the deadweight loss.

iii. If the government has pledged to buy up the resulting surplus of apples produced at this price, how much must they spend.

A hail storm damages the apple crop and decreases the supply of apples by 30,000 kilos at any price.

f) State the equation for this new supply curve.

g) Draw the new supply curve (on the same graph) and identify the new P intercept.

h) Explain, with reference to the figures, why the price that you calculated in part (b) is no longer the equilibrium price.

i) Calculate the new equilibrium price and quantity below (show your working) and identify both of these on your graph.

j) If the hail storm caused a decrease in supply of 30,000 kilos, explain why the new equilibrium quantity is not 30,000 kilos lower than the original equilibrium quantity.