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Supply and Demand Economics

  1. Jan 29, 2008 #1
    The demand for oranges is P=200-1.25Qd
    The supply for oranges is P=-20+0.50Qs

    a)find the equilibrium quantity
    b)find the equilibrium price
    c)what would occur if the market price was set at 150 cents?

    Please help me get started or explain how I should do it as I have no idea where to start.

    Thank you
  2. jcsd
  3. Jan 29, 2008 #2
  4. Jan 29, 2008 #3
    For parts a and b, you have 2 equations and 2 unknowns, therefore you just need to solve them.

    200 - 1.25Q = -20 + 0.50Q
    220 = 1.75Q
    Q = 125.7143
    Notice what this is saying, that at a price of 150 cents, consumers want to purchase 40 oranges, and suppliers want to produce 340 oranges. It doesn't mean jack sh!t that the sellers want to sell 340 oranges, because consumers only want to buy 40 of them, so the there will really only be 40 produced and sold. Economists generally state that "the short side wins out" in case that helps you remember. This is also refered to as a surplus.

    In order to get better and practice, you should quickly try and analyze what would happen if the price was set at 20 cents. You should put your answer on here, and I will come back and check it later.

    To the moderators,
    Is there anyway that we could get a forum set up on here where people bring there economics questions/homework? I noticed they have that here for physics and math homework but not economics. If we could get a spot like that on this forum I think it would attrach students because I'm pretty sure there's nothing like that on the internet for economics (I've looked and haven't found it). Also, I would definitely go on there and try to answer questions because it would help me remember the material. If it counts for anything, I already tutor economics at my university.
    Last edited by a moderator: Jan 29, 2008
  5. Jan 29, 2008 #4


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    Staff: Mentor

    Actually, we do not give answers to homework problems here. What we do is ask the student what they have done to try to resolve it on their own and then give suggestions to help them figure out the answer.

    In answer to the question about economics homework help, those can be posted in the Homework Help section in "Other Sciences". We get so few questions on Economics that a separate forum is not warranted at this time. Please feel free to help people find the answers, just be careful not to do their work for them. :smile:
    Last edited: Jan 29, 2008
  6. Jan 29, 2008 #5
    okay, for the 20 cents one you just need to make 20 equal to the equation on the left, right?


    I hope that's right...can someone help me check.
  7. Jan 29, 2008 #6
    Yeah, I thought about that too. It's a good point. I guess I just thought that such a forum would possibly draw some people who aren't currently members.
  8. Jan 29, 2008 #7
    Well, that's right, but if I was you, I'd plug 20 cents into both functions to see what results. I think that gives one a clearer sense of the whole story.

    For demand you get:
    20 = 200 - 1.25Q
    -180 = -1.25Q
    Q = 144

    For supply you get:
    20 = -20 + 0.50Q
    40 = 0.50Q
    Q = 80 (which is exactly what you got)

    The important thing is to not just go through the problems and numbers, but rather to understand exactly what's going on economically. Notice in this case, that at that price consumers want 144 oranges, but suppliers are only willing to produce 80 oranges. Again, the short side wins out, so 80 is the quantity that will be produced. Notice that this is a shortage (as opposed to the last example which was a surplus). Pretend for a minute, that each orange will be purchased by only one person, and notice what this means, that at 20 cents only 80 people will get oranges and the other 64 people (144 - 80) who wanted an orange at that price will go home empty handed. Also, think to yourself, if the oranges won't be allocated solely by the price system, then how will you allocate 80 oranges to 144 people? In other words, how will it be decided who will get them? Some potential answers are, that it will be "first come first server," or people who have social connections with the producers will get first dibs, or that the producers will be more inclined to give to those they like more (potentially based on race, gender, or some other criteria), or that consumers will have to bribe the producers by offering an amount of money above the 20 cent legal price.

    Although it's a simple example, it's very powerful and has many real world applications. The goal of economic theory (or any theory for that matter) is to derive refutable propositions (so that they can be tested empirically). One of the powerful testable propositions that is derived from this theoretical model, is that price controls will have predictable effects. Such models predict that controls on gas prices and rent controls lead to long waiting lines, poor customer service, and often times many people will not receive the good even after waiting in line for long periods of time. Such models also predict that minimum wage legislation will lead to higher unemployment rates. There's many more predictions, but these were the first that came to mind, as they've been analyzed extensively.
    Last edited by a moderator: Jan 29, 2008
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